Representatives of billionaire investor Kirk Kerkorian’s Tracinda Corp., which has proposed a $4.5 billion for acquiring DaimlerChrysler AG’s Chrysler Group, met with United Auto Workers members who have independently proposed an employee-stock-ownership plan for Chrysler. The meeting, in Toledo, Ohio, though did not yield any decisive conclusions, but it certainly stamped a new twist in the intensifying battle for America’s fourth-largest auto maker, a unit of the German industrial giant since 1999. It also highlighted the influential position the UAW holds with potential bidders.
Chrysler employees are contemplating a takeover bid for the loss-making US arm of German-US auto giant DaimlerChrysler to prevent Chrysler from going into the hands of a private equity firm, the Wall Street Journal had reported on Friday. The United Auto Workers union has been reviewing a proposal for employees and the union to buy a 70 percent stakes of Chrysler through an employee stock ownership plan (ESOP). According to this plan, Daimler would hold the remaining stake.
The paper reported that plan was originally floated by a small group of workers at Chrysler’s plant in Toledo, Ohio, and the UAW’s legal department is examining the viability of the idea. The acquisition is expected to be financed by workers agreeing to cuts in healthcare benefits and other allowance. The UAW and German labor leaders are of the view that they would fight a sale of Chrysler to a private equity buyer, fearing a new owner would be looking for a quick financial return and consequently cut jobs, wages and benefits.
Some analysts have repulsed the idea saying it puts employees at too much risk, if a company goes bankrupt, they could lose their jobs and investments. In 1974, Congress had established the Employee Stock Ownership Program to promote companies to allow employees to take a stake in their firms. However, the deals made under ESOP have largely been a failure and most notable fiasco includes Polaroid, United Airlines and Weirton Steel, which dampened enthusiasm for them.
On the other hand, supporters of the idea argue that ESOPs can work very well if employees have a lot of taxable income. They support the inducements that an ESOP gives employees. They further argue that high-profile cases heighten potential threats through lack of diversification, but most employee-owners are less defenseless than counterparts.
UAW may not exactly win the argument but they seem more determined than ever to at least have the discussion about the conservative understanding that is leaving more and more Americans trapped economically.
