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Analysis: Chrysler labor talks test Detroit's new reality

To match Special Report USA-AUTOS/UNION
To match Special Report USA-AUTOS/UNION

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.

The different shape of the two bailouts reflected the view of officials, led by then-auto czar Steve Rattner, that Chrysler was a riskier bet.

Fiat's creditors remain concerned. Moody's cut Fiat's credit rating on September 21, citing in part the Italian automaker's integration with Chrysler. Fiat now owns 58.5 percent of Chrysler and must decide how to pay the union for the 41.5 percent held by a UAW-affiliated trust fund.

SPARRING WITH UNIONS

U.S. auto executives have traditionally cultivated union leadership and adopted a tone of deference in public, stressing partnership and shared goals.

So it sent shock waves in Detroit when Marchionne fired off a scolding, two-page letter to UAW President Bob King, admonishing him for missing a key negotiating meeting.

"Until now, there have been encouraging signs of a new paradigm governing the relationship between us," Marchionne said in his letter to King last month.

Even then, as the GM negotiations with the UAW wrapped up, many workers expected Chrysler to be next in line. Instead, Chrysler's contract was stretched to October 19 and the union shifted its focus to ongoing talks with Ford.

Both sides have an incentive to settle quickly. Chrysler needs talks to wrap up so it can go forward with Marchionne's five-year growth plan to boost production of new models. The UAW, Chrysler's second-largest shareholder, also needs to move on its plans to organize other non-union automakers.

Marchionne has gone toe-to-toe with the UAW before. In 2009, he told the UAW's then-president, Ron Gettelfinger, that U.S. auto workers had to accept a "culture of poverty" rather than expect a "culture of entitlement."

In Italy, Marchionne has engaged in a tug-of-war with radical metal workers union Fiom, the country's largest, over his attempts to boost productivity and reduce absenteeism.

Marchionne told reporters he would not let Fiat in Italy be swayed by the union. Asked if negotiations with the UAW were more difficult than those with Italy's labor groups, he said: "It's different. Over there (in the States) the employees continue to show up at work. It is not an ideological stance, unlike in Italy."

"Marchionne certainly shook things up in terms of labor relations in Italy, breaking a mold that had become stagnant," Tiziano Treu, a university professor and center-left senator who is also a former Labor minister, said. "That is positive, although he could have done it more gracefully."

(Additional reporting by Soyoung Kim and Ben Klayman in Detroit; Editing by Matt Driskill)

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