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Chapter Three— Chrysler Corporation: Bailing Out the Banks
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The United Auto Workers

In August 1979 Iacocca asked the UAW for aid in the form of an exemption for the firm in the union's contract negotiations and "a two-year freeze on both wages and fringe benefits. [UAW president Douglas A.] Fraser promptly rejected the proposal." Chrysler's workers had already aided the company by buying $37.3 million of its common stock, which was at its lowest value in 1979 ($7.63 per share), when Chrysler approached the UAW for contract concessions (Newsweek, 13 Aug. 1979, 52, 61). Moreover, by 1980 more than 210,000 workers had lost their jobs (Business Week, 24 Mar. 1980, 79), with no guarantee of job protection in sight. Some observers were angry at the UAW's stand, arguing that the workers had a stake in Chrysler's survival. Arnold R. Weber suggested in a New York Times column (24 Aug. 1979, D2) that the UAW "could use a substantial portion of the [union's $300 million strike] fund to take an equity position in the company." Congressman Kelly argued that "instead of striking to further depress conditions of production in the United States, they ought to use [the


strike fund] . . . to try and save the jobs of the UAW members that are involved with Chrysler" (U.S. Congress, House 1979a, 248).

The union refused to consider the proposal on the grounds that such an investment would severely undermine their bargaining position against Ford and GM. In addition, Fraser pointed out that using the union's strike fund for other purposes would violate the union's constitution: "Under the terms of our constitution . . . there are several restrictions on [the use of the strike fund]. . . . There is a question in my mind whether you can take money that is supposed to protect all of the workers in our union in times of strike and give that money to one section of our union" (U.S. Congress, House 1979a, 290). Instead, the union suggested that it could offer some aid in contract negotiations in exchange for "representation on the Chrysler board of directors and participation in the management decisions at all levels of the corporation" (New York Times, 24 Aug. 1979, D2). Worker representation on a corporate board had no precedent in U.S. labor history.

By October 1979 the prospects of worker representation on the board and employee stock ownership in exchange for union concessions to Chrysler looked promising. Both the union and key members of the Senate (such as Majority Leader Robert C. Byrd and Senate Finance Committee Chairman Russell Long) became convinced that any federal aid "ought to be conditioned on Chrysler's workers' being able to win a chunk of the corporation, or at least to influence decisionmaking 'at all levels of the corporation'" (Business Week, 1 Oct. 1979, 46). Senator Donald W. Stewart entered a statement into the Congressional Record on 10 October 1979 supporting the notion of an employee stock ownership plan and asserting that such stock should carry voting rights for the employee-owners to facilitate worker participation in management decision making: "If we are to achieve the revitalization of Chrysler, each employee must be sure that he [sic ] has some voice in the future of his [sic ] company." Several members of Congress argued: "If the current owners are asking employees to make sacrifices, it is important that the employees gain something in return, such as an increased ownership share and participation in the company" (U.S. Congress, House 1979a, 333, 327).

One of the most important levels of participation the UAW de-


manded was in pension investment decisions—an implicit recognition of the power afforded the controllers of pension funds and the political implications of worker participation in pension fund investment decisions (see Rifkin and Barber 1978). The UAW's plan would have given workers a voice in the control of those capital flows derived from their own deferred wages and a strong weapon in the class struggle. For example, the UAW and Chrysler "agreed that, in the future, part of the company's pension contributions will be used to fund 'socially desirable projects,' rather than to buy common stocks or government securities, as in the past." Such projects might include

home mortgages, health maintenance centers, and nursing homes in communities with Chrysler plants. . . . In a related provision, the union won the right to name up to five companies each year whose stock it wants the pension fund to shun because of their involvement in South Africa and their failure to endorse the "Sullivan principles" of racial equality. (Business Week, 12 Nov. 1979, 93)

Note, however, that the agreement to fund such projects did not include labor participation in determining the actual projects to ultimately receive funding or the amount each project would get. The union also demanded worker participation in decisions concerning plant closings. As of 1987 Chrysler's pension contributions had not funded any of the "socially desirable projects" the union had suggested. Indeed, in February 1982 the firm asked the union to allow it "to defer for a second time payments of $187 million to [the union's] pension fund" (New York Times, 22 Feb. 1982, D1).

The Carter administration looked favorably on the use of employee stock ownership plans to aid the ailing firm. The struggle over contract concessions in exchange for labor representation on Chrysler's board, worker participation in decision making, and profit sharing for workers became key issues in Chrysler's attempt to persuade workers to bail it out. In March 1980 Fraser was elected to Chrysler's board of directors at its annual stockholder meeting (New York Times, 4 Nov. 1979, F19).

In mid-October 1979 Fraser offered Chrysler a "package of possible contract concessions," including the deferral of $200 million in pension fund payments for 1979 and a lower wage and benefit


package than that offered Ford and GM workers. This offer represented "a departure from the [union's] 42 years of history and practice and tradition" (U.S. Congress, House 1979a, 288, 275; New York Times , 18 Oct. 1979, D5). Fraser also suggested that the UAW would "be willing to lend virtually all of the union's $850 million in pension funds to Chrysler, provided the loan was fully guaranteed by the federal government to protect the worker's benefits" (New York Times , 20 Oct. 1979, 31). But Fraser still refused to lend Chrysler any money from the union's strike fund. He further insisted that although Chrysler workers were willing to negotiate a less advantageous contract with Chrysler than with GM or Ford, they must have parity with the workers of the other two firms by the end of the three-year contract. The wage and benefit concessions meant that Chrysler workers earned $2,000 less than their counterparts at Ford and GM over the three-year contract (Business Week , 12 Nov. 1979, 93).

The union's concessions to Chrysler made up the bulk of the $500 million worth of concessions the automaker had to raise from its "constituents and employees" in its bid for federal aid (Business Week , 5 Nov. 1979, 55). The company's survival plan included $203 million in UAW wage concessions and the union's $200 million pension fund rollover for Chrysler (U.S. Congress, House 1979a, 318). Fraser acknowledged the union's lack of enthusiasm for the concessions it made to the firm, saying, "We're doing what we have to do" to save members' jobs (Business Week , 5 Nov. 1979, 55). He urged the federal government to provide loan guarantees to the firm.

Workers' concessions to Chrysler were considered insufficient when the House Committee on Banking, Finance, and Urban Affairs approved the federal loan guarantees for $1.5 billion. Alfred E. Kahn, chairman of the Carter administration's Council on Wage and Price Stability, suggested that the government was guaranteeing worker's wage increases and argued that the contract concessions made by the union "'should not . . . be considered adequate' to satisfy the legislation's requirement that workers and other parties with a stake in Chrysler's future make sacrifices to help the company survive" (New York Times , 16 Nov. 1979, D13). Yet by the end of the House subcommittee hearings, Congressman James J. Blanchard pointed out that although the point


of the loan guarantee legislation was to ensure that all interested parties with a stake in the firm make concessions, "the UAW is the only party, thus far, that has made any form of concession" (U.S. Congress, House 1979a, 1395).

When the Senate Banking, Housing, and Urban Affairs Committee approved $1.5 billion in federal loan guarantees for the firm, it required the workers to give up wage increases already approved in their three-year contract with Chrysler. This concession would impose a wage and compensation freeze for three years and required that the contract be renegotiated for the company to draw on the loan guarantees. The committee's demand marked "an unusual intervention by Congress in the collective bargaining process" (New York Times , 30 Nov. 1979, D1).

The union flatly rejected the three-year wage freeze, "even if [doing so meant] bankruptcy for the company" (New York Times , 5 Dec. 1979, D4). fraser felt that the UAW was being asked to bear the greatest burden in the Chrysler bailout when labor had no voice in the poor managerial decisions that had produced the situation (U.S. Congress, House 1979a, 298).

The union's militant stand forced the Carter administration to acknowledge that the Senate's proposed wage freeze placed an "inequitable burden on the workers" and to suggest modifications to the bill (New York Times , 5 Dec. 1979, D4). Even Chrysler sided with the union in denouncing the Senate bill, perhaps out of fear that a complete lack of cooperation by labor would destroy the firm's chances for federal aid.

The union's militancy also confronted the hardened position of the banks. Both groups were important to the survival of Chrysler, because both were required to make concessions to support the firm and enable it to qualify for the federally guaranteed loans. But neither group wanted to "make the first move to rescue the sinking auto maker" (Business Week , 1 Dec. 1979, 36). A Business Week analysis implied that the banks and the union were equally strong in the struggle (17 Dec. 1979, 32; 16 Mar. 1981, 28). However, labor was hardly the equal of the banking community. The UAW had far more to lose in a Chrysler bankruptcy than the banks. Indeed, the banks' investment would be protected by the federal loan guarantees. Their more favorable position in a bankruptcy, as well as their direct hegemonic control of capital flows, enabled the


banks to stall labor, whose only strength was the ability to strike (a strength it could not exercise for fear of job losses if Chrysler went bankrupt).

The UAW relented first when Fraser suggested that the union might be willing to "grant some further concessions to help Chrysler survive" by reopening its Chrysler contract. The union still adamantly opposed a three-year wage freeze. At a 3 December 1979 meeting of the UAW's 233-member Chrysler Bargaining Council in Washington, D.C., "almost to a man [sic ], they said that they would rather shut down the shop than take a three-year freeze." The union refused to reopen its contract to aid Chrysler without an "'equity of sacrifice' between workers, bankers, and the company" (Business Week , 17 Dec. 1979, 31). The search for equity dissolved when the union relented and reopened its contract negotiations with Chrysler, providing the company with "$446 million in concessions from the industry pattern contract" (New York Times , 8 Feb. 1980, D2). By now workers had conceded a total of $460 million in wages and benefits. Nevertheless, in December 1980 Chrysler again asked the union for a wage freeze to "persuade the Government to authorize additional loan guarantees for the company." Once again the union bristled. Fraser suggested that the company "go elsewhere first this time." Chrysler planned to ask its banks to convert $500 million in unguaranteed loans to preferred stock, because "a bank that would enter such an arrangement would be unable to make claims against Chrysler if the company failed" (New York Times , 13 Dec. 1980, A1, 37). Needless to say, the banks opposed the plan.

In January 1981 the Chrysler Loan Guarantee Board gave the company "conditional approval" to draw $400 million more from its fund. Once again the condition was "major concessions from the United Automobile Workers, the company's lenders, and its suppliers." Chrysler asked the union to give up cost-of-living adjustments and wage increases totaling $622 million, which represented a 13 percent pay cut. Although Fraser had bargained the company down from its original request of $676 million, he termed the wage freeze "'the worst economic settlement' he had ever had to negotiate" (New York Times , 15 Jan. 1981, 1, D3). Iacocca (1984, 233) estimated that "over a nineteen-month period, the average working guy [sic ] at Chrysler gave up close to $10,000."

The union conceded to the wage freeze in the hope of preventing job losses from a Chrysler bankruptcy, which UAW leaders considered the only alternative outcome to the bailout (see Iacocca 1984, 207–208). Bankruptcy would be disastrous for the union, which was already steadily losing members. Although some speculated that a foreign auto manufacturer would have gladly taken over Chrysler's operations (see Schwartz and Yago 1981), a takeover was not necessarily in the best interest of organized labor. Foreign automakers (especially Japanese firms, the most likely takeover candidates) have generally had poor relations with labor unions.

Ironically, labor suffered enormous layoffs even with the concessions. By the end of 1981 Chrysler was operating with 87,825 employees, compared with 133,811 in 1979 (New York Times , 29 Aug. 1982, F8). The union's fear of job losses resulting from their refusal to make concessions proved naive.

Chrysler had to give back some of the pension concessions and gave the union "a commitment . . . that it would not close five plants during the life of the contract" (New York Times , 15 Jan. 1981, D3). The company also agreed that any further layoffs would include "supervisors . . . in the same proportion as their ratio to union members in the work force" (Business Week , 9 Feb. 1981, 30). But this agreement was relatively insignificant, since more than 210,000 union workers had already lost their jobs (Business Week , 24 Mar. 1980, 79).

In addition, Chrysler agreed "to consult—perhaps even negotiate—with UAW local committees on all decisions that 'might adversely affect' job security, such as layoffs and plant shutdowns" (Business Week , 9 Feb. 1981, 30). Workers also got a profit-sharing plan from the company. But the employee stock ownership plan implicitly placed a further risk of financial loss on workers in the event of a Chrysler bankruptcy. Workers also took on an inequitable burden compared with the firm's principals:

To be sure, Chrysler is a long way from having a net worth of $3.5 billion (the point below which Chrysler has agreed with its banks not to pay out dividends). Thus, shareholders are much more likely to see dilution than dividends in the near future. Disquieting, too, is the fact that Chrysler officers and directors are willing to risk so little of their own money on the company's future. (Business Week , 8 June 1981, 103)


Ford and GM, which had been watching Chrysler's struggles from afar, decided that they too would like to squeeze concessions from the union, which had been "one of the nation's leaders in winning wages and benefits for its members." Although these companies were not as financially troubled as Chrysler, they claimed they were unable to compete with Japanese automakers, which operated with lower labor costs. Both firms threatened to "shift more of their production overseas to areas of lower wage costs if the union [did] not accede to their requests" (New York Times , 3 June 1981, D1). But neither wanted to make the concessions to the union that Chrysler had made, and the union flatly rejected their demands. By 1982, however, the UAW had given in and made substantial concessions to both firms (see New York Times , 1 Mar. 1982, A1; 22 Mar. 1982, A1; 10 Apr. 1982, 1). The UAW's struggle with GM and Ford demonstrated that Chrysler's bankruptcy was not the main threat to labor. Rather, "runaway shops" and the internationalization of production posed the greatest threat. The automakers' ability to shift production to foreign countries with cheaper, nonunionized labor gave the firms a decisive advantage in their dealings with the union. And it undermined Chrysler's and the union's pleas for a federal bailout to avoid massive unemployment.

Of the few concessions the union was able to get from Chrysler in exchange for forfeiting $1 billion in wages and benefits, Fraser was most pleased with the unprecedented representation of workers on Chrysler's board. He argued that the success of the UAW would help spread the idea. Many observers considered Fraser's presence on the board a conflict of interest, criticizing him as a special-interest director representing the needs of a single group in the firm. But as Donald E. Schwartz noted, banks have a long history of representation on nonfinancial corporate boards, and their presence is analogous to the union's (Business Week , 19 May 1980, 149). Even Iacocca (1984, 236–237) agreed, adding that labor's presence on corporate boards is "pretty standard in Europe. And in Japan they do it all the time. So what's the problem?"

Where Fraser saw worker representation on Chrysler's board as a ground-breaking development in the labor movement, Lane Kirkland, president of the AFL-CIO, recognized that power de-


rives from the organized command of capital flows and not from corporate directorships. Kirkland argued that corporate boards are unimportant in the development of policy and saw "control over pension, welfare and other funds" as "a far more effective tool for labor unions" (New York Times , 16 Nov. 1981, A1).

In this view the struggle over the survival of Chrysler offered the union a small, insignificant development in the class struggle (union representation on Chrysler's board of directors) in exchange for major, unprecedented, and damaging concessions by labor. The banks' intransigent position forced the UAW to bear the largest burden of federally required concessions for Chrysler to qualify for the loan guarantees. Where labor lost $1 billion in wages and benefits and over 210,000 jobs, the banking community traded debt for equity in the firm—a risk from which the banks have subsequently profited. Labor's concessions were not risks but lost battles that it would have to fight again later. Meanwhile, the banks did not advance any new money at all.

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Chapter Three— Chrysler Corporation: Bailing Out the Banks
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