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Analysis: Chrysler labor talks test Detroit's new reality

Oct 2, 2011, 6:47 p.m.
An American flag flies in front of the United Auto Workers union logo on the front of the UAW Solidarity House in Detroit, Michigan, September 8, 2011. REUTERS/Rebecca Cook

By Deepa Seetharaman and Silvia Aloisi

DETROIT/MILAN (Reuters) - When contract talks between Chrysler Group LLC and the United Auto Workers union opened in late July, expectations were high for a swift deal. Representatives of both sides even wore matching maroon jackets in a show of unity for the cameras.

But by September, when negotiators had moved behind closed doors at Chrysler's headquarters north of Detroit, the talks bumped into issues of economics and ego. The lack of progress forced a contract extension into the middle of October, prolonging the uncertainty for 26,000 Chrysler workers.

With the prospect of arbitration looming if no deal is reached this month, Chrysler has become the test case for how far the UAW will bend its historic commitment to one-size-fits-all contracts for Detroit automakers.

Chrysler's talks are proving tougher than those for General Motors Co and Ford Motor Co as its financials are more precarious. Chrysler chief Sergio Marchionne is therefore under much more pressure than his Detroit counterparts to hold the line on costs.

"They are not as far along in their recovery as GM is," IHS analyst Rebecca Lindland said. "It's a mistake to assume that we can do cookie-cutter deals for these three manufacturers because they're all in such completely different places now. It didn't used to be like that, but that's the new reality."

Marchionne himself represents something of a new reality for the UAW, bringing a sharp-elbowed style and a record of public battles with unions in Europe.

He has been opposed to a contract that mirrors the one just ratified at GM. That deal offers each worker bonuses of at least $11,500 over four years although it offers GM savings in other areas.

At Chrysler, he has pushed for a concessionary contract that reflects the still-tentative nature of its turnaround two years after the federal bailout that gave control of the No.3 U.S. automaker to Fiat SpA .

Chrysler has asked for a UAW commitment to keep labor costs down beyond 2015, beyond the four-year contract under discussion. The company also wants to lift a cap on the number of lower-cost, entry-level workers it can hire, a person with direct knowledge of the talks said. The UAW represents 26,000 workers at Chrysler, including 3,000 salaried employees.

"I think Chrysler's problem is that they don't want to be seen as the little company that limped along," said Gary Chaison, an industrial relations professor with Clark University. "They don't want to be the odd company out that has terms imposed on it."

Behind Marchionne's tougher line is a harsh reality.

He is still struggling to reverse consumer perceptions of Chrysler's brands and to relaunch the Fiat brand in the United States. The Fiat 500 small car will likely miss its 50,000 sales target in 2011.

The 2009 U.S. rescue saddled Chrysler with an outsized debt load, in contrast to GM, which emerged from bankruptcy with little debt. Chrysler refinanced $7.6 billion of that debt on its balance sheet in May.

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