UAW Stakes in Chrysler, GM Transform Labor's Role

Successful ratification of a deal between the United Auto Workers union and Chrysler LLC represents arguably the final piece to the auto maker's survival, but also will dramatically alter relations between labor and management in a manner Detroit never has seen.

In late April, Chrysler reportedly reached a deal with creditors to sharply reduce its debt, another key element to finalizing a partnership with Fiat Auto Group and gaining an additional $6 billion in taxpayer loans from the U.S. Treasury.

However, the tentative deal with the UAW calls for labor to receive upwards of 55% ownership in the auto maker in exchange for halving the $10.6 billion in cash Chrysler was to contribute to a union-run health-care trust for retirees, or Voluntary Employee Benefit Assn.

The agreement also freezes blue-collar wages until 2011 and allows Chrysler to hire more workers at lower rates agreed to in a 2007 collective-bargaining agreement. Retiree health-care benefits are expected to be pulled back sharply.

In addition to a huge stake in a newly structured Chrysler, in which Fiat receives 20% and Treasury will own 10%, the UAW reportedly will gain representation on Chrysler's board of directors.

The Treasury also has begun reconstituting the board of directors at General Motors Corp., a shakeup that could see labor gaining board seats there, as well, in addition to taking a 39% stake in the company in return for an equity-for-cash swap on the health-care trust worth $10 billion.

Never before has the UAW had such a powerful role in determining the direction of an auto maker. But at the same time, the union's role as a bare-knuckled bargainer for its membership arguably will be weakened.

However, few alternatives existed. Without agreeing to an exchange of equity for cash due to the health-care trust, up for ratification, the UAW would have sent Chrysler on a path of bankruptcy or potential liquidation.