The message in Fiat chief Sergio Marchionne’s interview with a Canadian newspaper on a possible merger between his firm and Chrysler was short and to the point: ‘cut costs or we walk’.
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Pulling no punches, Marchionne told the Toronto-based Globe and Mail Fiat would abandon Chrysler to fend for itself in bankruptcy court unless the US automaker’s Canadian and American unions agree to substantial labour cost reductions by the end of the month.
The paper, in the key Canadian automaking province of Ontario, home to Chrysler, GM, Ford, Honda and Toyota factories, noted that the deal with Fiat is Chrysler’s last chance to avoid a bankruptcy filing and possible liquidation. It is subsisting on cash borrowed from the US and Canadian governments and the former has given it only until 30 April to agree the Fiat deal before pulling the plug on the federal funding.
Interviewed at Fiat headquarters in Turin, Marchionne, who has visited the US for talks with Chrysler in the last few weeks, said he was prepared to scrap the deal and look for another international partner if the unions – the Canadian Auto Workers (CAW) and the United Auto Workers (UAW) won’t match the lower labour costs of Japanese and German plants in the United States and Canada.
“Absolutely we are prepared to walk. There is no doubt in my mind,” he said. “We cannot commit to this organisation unless we see light at the end of the tunnel.”
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By GlobalDataMarchionne told the Globe and Mail workers on both sides of the border would have to end their sense of entitlement if Chrysler was to have any chance of repairing itself.
“The minute you talk to me about historical entitlement in an organisation that is technically bankrupt, it’s a nonsensical discussion,” he said. “There is no wealth to be distributed.”
Marchionne’s comments came as the CAW on Tuesday claimed Canada’s automotive manufacturing industry “has been uniquely and strongly profitable in recent decades”. A report by union CAW economist Jim Stanford reviewed the longer-term financial performance of automotive manufacturing in Canada, dating back to 1972, and continuing through to 2007, the latest year for which industry-wide profitability data was available from Statistics Canada, and the last year prior to the onset of the global credit freeze.
On an industry-wide basis, the report said, automotive manufacturing had generated positive net after-tax income in every year but one since 1972. Adjusted for inflation (in 2008 terms), the auto manufacturing industry generated cumulative net after-tax profits in excess of C$100bn during that time.
Should Marchionne reach a deal with the two powerful unions, the US and Canadian governments would prop up Chrysler with about US$7bn in loans to sustain its operations while Fiat overhauls the company and fills its dealerships with Fiat-derived models, the Globe and Mail said.
But the Fiat chief cautioned there was only a 50-50 chance the partnership would be formed due to the lack of progress on labour negotiations, especially on the Canadian side.
“From what I can tell from a distance, the CAW may have taken more rigid positions,” he said.
“The dialogue is out of sync. I think they need to see what state the industry is in. Canada and the US are coming in as the lender of last resort.
“No one else would put a dollar in. This is the worst condemnation of the viability of this business.
“We are not anti organised labour. No one wants to remove the UAW or the CAW from the table. But it will happen if a bankruptcy process drags on. …The UAW and the CAW have a unique opportunity here to change the framework of the discussion.”
The paper illustrated the hourly labour cost gap that still needs to be closed.
A mature plant such as the Toyota assembly factory in Georgetown, Kentucky, pays an hourly wage in the high US$40 range while Honda and Nissan Motor in the US pays around an estimated US$40 an hour, the Globe and Mail said.
Chrysler has already demanded that the CAW trim hourly labour costs by C$19 (US$15.60) to C$55 ($US45.15) to match what it pays its UAW workers in the US.
The CAW has refused to go that far, the paper added, offering Chrysler only the same C$7 to C$7.25 an hour it has already given General Motors Canada in overall cost cuts, plus agreeing to reduce break times at Chrysler’s plants in Brampton and Windsor, Ontario, which would reduce hourly costs by what the union said was several more dollars an hour.
Fiat, with Obama administration autos task force approval, had earlier agreed to take a 20% initial stake in Chrysler and hike that in 5% steps, to a maximum of 49% as various targets are reached, such as the launch of Chrysler vehicles on Fiat platforms. The Italians’ stake could then go above 49% only when federal bailout loans from the US treasury are repaid.
President Obama said on Tuesday it was his “fervent hope that in the coming weeks, Chrysler will find a viable business partner”, the Globe and Mail added.
