By on June 3, 2011

After the U.S. and Canadian government are out of the car business, at least as far as Chrysler is concerned, Fiat will own 52 percent. Who owns the rest? A large chunk, 45.7 percent, is owned by the UAW. By the UAW’s VEBA healthcare fund, to be exact. And the union is in no great hurry to change that. The UAW has a big “HOLD” on their share of Chrysler, hoping that the value goes up. That’s what “two people familiar with the fund’s strategy” told Reuters today.

The fund has several obvious options for cashing out.

  • They could sell their shares to an outside investor, if they find one.
  • They could sell their shares to Fiat, if Fiat is interested.
  • They could also wait until an IPO and sell their shares in the open market.
  • Currently, the best strategy appears to do nothing.

Under the 2009 agreement with the U.S. Treasury, VEBA’s proceeds from a sale of its Chrysler stake are capped at a “threshold amount.” The amount was $4.25 billion in 2009. It grows at 9 percent compound annual interest.

A source with a calculator told Reuters that that cap on the union’s payout has risen to nearly $5 billion.  Fiat paid the U.S. government $500 million for a 6 percent share. That puts a  $3.8 billion valuation on the UAW holdings. The union has an interest in maximizing their return. Let’s say they find a buyer, then they would like to see $ 5 billion now, or nearly $5.5 billion in a year.

That’s not a bad investment. It also is a great bargaining chip. “The slower approach by the UAW’s healthcare trust fund means the autoworker’s union may have a major holding in Chrysler as it opens a crucial round of contract talks this summer,” says Reuters. “The union is seeking to win back some concessions it made during the 2007 negotiations.”

Sergio Marchionne said that an IPO would be the “most efficient” way for the UAW.  But, “if VEBA finds a buyer for the position and Fiat accepts the buyer as the holder of the stock, there’s nothing that would require an IPO,” Marchionne told reporters.  Sergio also knows how to play poker. He will deny a buyer if there’s not enough above the threshold amount. If the unions get too aggressive in their bargaining, the stock will yield less in an IPO.

Today, Marchionne said that a public share offering for Chrysler is more likely to occur in 2012 than this year “because the automaker needs a longer track record of performance,” Reuters reports.

This will stay interesting for a while..

 

Get the latest TTAC e-Newsletter!

13 Comments on “Sergio Marchionne And The UAW Play Poker. In The Pot: $ 5 Billion...”


  • avatar
    GS650G

    Just call J G Wentworth when you need cash now.

  • avatar
    aristurtle

    So the UAW’s pension and health care fund is now directly tied to keeping Chrysler alive and profitable. And the UAW currently seems to have no desire to cash out. Where is the problem, exactly?

  • avatar
    Beerboy12

    I always thought that unions were supposed to be on the side of the workers. If they have that great an interest in the company then they will struggle to take the side of the worker.
    How did this happen???

    • 0 avatar
      psarhjinian

      The point of having labour as a shareholder is that it forces the union to think a little more strategically because they have a stake in the company.

      Generally, labour always has had a stake, and a greater one at than, than management. Management, especially at the upper levels, has a network it can fall back on, is paid well, and has lots of influence, mobility and power. Labour, generally, has fewer transportable skills, less of an implied safety net, and little or no network, so you’d think they generally would have more interest in the long-term health of the enterprise.

      In Europe and Asia, this is pretty much the case, and unions already sit on boards. In North America, where the relationship has been poisoned, labour has been more or less conditioned to try for whatever it can get.

      I’m hoping that moves like this will see a return of syndicalism in North America, but I’m not holding my breath: labour has not history of this kind of thing, and management hates the very idea. I have doubts it’ll be stable, but I’d love to be surprised.

      • 0 avatar
        Tommy Boy

        >>”Generally, labour always has had a stake, and a greater one at than, than management. Management, especially at the upper levels, has a network it can fall back on, is paid well, and has lots of influence, mobility and power. Labour, generally, has fewer transportable skills, less of an implied safety net, and little or no network, so you’d think they generally would have more interest in the long-term health of the enterprise.”

        Theoretically that’s true at the local /plant level, but the UAW’s own history of driving its employers to shrink through non-competitiveness, and ultimately to bankruptcy, belies that. Along the way, the UAW let its membership base keep shrinking (hardly good for the formerly-employed union “brothers and sisters” in order to maintain the way above-market compensation for the more senior members).

        Also, union constitution typically reserve most power for the top, the international that is headquartered in D.C. Those folks have their “network” too, and aren’t particularly concerned with the best interests of members at a particular employer — indeed it’s not uncommon for them to let one company go under, and the union members become unemployed, rather than agree to concessions which might spread to other organized workplaces.

  • avatar
    John Horner

    Nobody calls it Socialism when huge stock options and stock grants are given to executives. Nobody calls it Socialism when the employees of Google or Facebook get massive windfalls thanks to the stock options they were given by the company.

    All in all, having the union’s fortunes tied directly to the financial performance of a company over the long haul could have massive upsides. An us vs. them combative attitude often does the workers, management and stockholders of a company a big disservice over time.

    • 0 avatar
      Tommy Boy

      Please see my reply to BeerBoy12.

    • 0 avatar
      Beerboy12

      It makes more sense to have good profit sharing & performance bonus schemes in place than to have the union “own” the company. Companies do well when they strive for happy employees. I believe Google is a good example of these new, progressive, management styles and Google is a successful company. I am no fan of unions but they do have a role to play and that role is not running the business.

  • avatar

    Union unrest killed the British auto industry crap cars didnt help but a militant workforce wiped any quality out having the union own a piece of the company will payoff long term.


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Contributing Writers

  • Jack Baruth, United States
  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Vojta Dobes, Czech Republic
  • Matthias Gasnier, Australia
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Cameron Aubernon, United States
  • J Emerson, United States