Analyst: Merger can get GM cash, leverage with UAW

GM needs to renegotiate its UAW contract, an expert says.

Detroit Free Press

DETROIT — If General Motors Corp. is seen as “saving” Chrysler from bankruptcy — preserving some jobs and benefits — it could win enough good will to extract further savings from the United Auto Workers, a Wall Street analyst suggested.

The new view on a possible GM-Chrysler merger emerged on a day when the Detroit Free Press was told that talks between Chrysler owner Cerberus Capital Management and GM were “making headway.” But the person, who is familiar with the talks, said there is no deadline to have a deal: The two sides will not automatically stop talking on an arbitrary date, such as the end of the month or Election Day, Nov. 4.

A merger would be a “high-risk” deal but may give the combined automaker leverage to renegotiate with the auto workers’ union, J.P. Morgan analyst Himanshu Patel wrote in a note to clients.

“GM desperately needs a reason to renegotiate many parts of its 2007 UAW contract,” Patel said.

Recently filed court records by the UAW cite a financial analysis — made before the current economic turmoil broiled the industry — that shows up to a 50 percent chance of a Chrysler insolvency by early 2013.

On Chrysler’s factory floors, fear has set in among workers. “It’s got everybody rattled up,” one longtime, hourly worker said. “I’m fighting back tears right now.”

Peter Morici, a University of Maryland business professor and former chief economist at the U.S. International Trade Commission, said Chrysler should be allowed to go broke.

“The simple fact is that the best solution for Chrysler is Chapter 11 to remove the burdens of the UAW contract and scale down the company to something one half to two thirds its current size,” Morici wrote in an e-mail. “That would serve GM’s interests, too — both Ford and GM would benefit from some capacity and cars going off the market.”

Morici noted that if GM acquired Chrysler’s Jeep brand and minivan program, “GM would still have to pay heavy severance bonuses to workers it laid off streamlining their operations, similar payments would be required to shutter much of Chrysler’s unattractive truck and car operations, and GM would still have to fund the union health care fund for retired Chrysler employees.

“Those costs [are] simply more than the Jeep and minivan franchises are worth.”

Both Chrysler and GM this year have been fighting rumors about bankruptcy. GM is burning through more than $1 billion in cash a month and had lost $18.8 billion by midway through the year. Chrysler’s finances are not clear.