Some crowing at Chrysler backfired with the union
Lee Iacocca did what many people thought was impossible: He pulled the Chrysler Corporation back from the brink of bankruptcy.Skip to next paragraph
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A consummate promoter, Mr. Iacocca began boasting to potential car buyers and investors about the company's newfound financial health and citing a $1 billion cash and securities hoard as evidence. The tough-talking executive was justifiably proud that a concern that lost $3.5 billion between 1978 and 1981 is expected to post a profit in 1982.
But the board chairman's salesmanship has returned to haunt him.
Union members made $1.07 billion in wage and benefit concessions between 1979 and 1981 to keep the automaker afloat. So, after hearing about its newly fat pockets, the workers overwhelmingly rejected a new labor contract as too stingy. One big complaint: Workers would have gotten no immediate raise, but instead would have received a quarterly wage bonus tied to Chrysler's profits.
Chrysler's response was to refuse to throw anything more into the pot. ''There is simply no more money available,'' the Chrysler industrial relations vice-president, Thomas Miner, told a press conference.
Tomorrow, Chrysler workers will vote to decide whether to strike the automaker Nov. 1 or to suspend negotiations until after Jan. 1. The United Automobile Workers president, Douglas Fraser, writing to the members, said that by then ''hopefully the economy will have improved,'' and Chrysler will be able to offer more, making the union's bargaining position better.
Whatever agreement Chrysler and its workers eventually reach will play a major role in determining the company's viability. With its pot of cash, analysts think the company can afford a slightly richer pact or survive a short strike, which would cost an estimated $45 million a week in profits from lost sales. That would wipe out Chrysler's 1982 earnings, which Merrill Lynch, Pierce , Fenner & Smith Inc., a brokerage firm, estimates at $50 million.
But a long strike or major wage increases could put the company's survival in doubt. ''Adding $2 or $3 an hour to workers' wages would cause serious difficulties, while adding 20 cents or 30 cents per hour would not,'' notes David Healy, an auto analyst at Drexel Burnham Lambert Inc., another brokerage.
''The company certainly could bear a couple of weeks of strike,'' adds John Hammond, an auto analyst at Data Resources Inc., an economic consulting firm. The company has an estimated 70 days' supply of cars on hand; 60 days is considered ideal. ''But every week that a strike drags on decreases their long-term viability. They would have to use funds already earmarked for product (development) programs and other competitive investments.''
Even if Chrysler and its workers can work out some mutually face-saving agreement, the jury is still out on whether the company can survive as an independent entity. A key problem is that competitors like General Motors Corporation are outspending Chrysler by 10 to 1 or more to develop new products and build more efficient plants. ''They will be dependent on outside sources for both capital and products that they don't have,'' argues Harvey E. Heinbach, an auto analyst at Merrill Lynch. At some point they will need a merger partner to compete effectively, he said.
A central component of Chrysler's strategy for surviving in the perilous auto market of the '80s is to continue to have a labor cost advantage, compared with its bigger rivals. The hourly wage at Chrysler is about $9.07, about $2.50 less than that of GM's union employees.
With a balance sheet that is still weak, ''the only thing they can try to do is achieve increased market penetration,'' DRI's Mr. Hammond says. ''To do that, one of the things they need is a price advantage.''
''They are trying to squeeze as much as possible out of a car's cost to make a more affordable line of products,'' notes John Kolvereid, director of auto industry forecasting for Chase Econometrics, a consulting firm.
And cutting deeply into its reserves of cash and marketable securities is not a prudent course, analysts say. If the auto market remains sluggish, GM can go to a bank to borrow money if it needs to. ''Chrysler cannot do that; they need to have cash in hand just to cover the downside risk,'' says Mr. Heinbach at Merrill Lynch. In addition, the company will need cash, since it is slated to begin repaying its government-guaranteed loans next year.
Of course, conserving cash is not the only consideration. If workers decide not to strike, Chrysler must also weigh the cost of an unhappy labor force. It could be difficult to try to match Japanese achievements in quality with disgruntled workers.
And a strike now would be particularly inconvenient, since the company is trying to launch a new line of E-cars, a six-passenger upper-mid-size vehicle. ''They have a bit of a competitive edge,'' says Mr. Schlein at Value Line. ''They have some new models for 1983. The main competition's offerings are not due until the end of the year.''
It is the competition's larger budget for new car development that casts the biggest shadow on Chrysler's long-term future, analysts say. But they give the company high marks for making the most of each basic body size or platform. The K body, for example, has been marketed as a standard sedan and as a high-priced convertible, and eventually will include a minivan and limousine. (The minivan is expected to be introduced in the latter part of 1983, a Chrysler spokeswoman said.)
The question is how these models will fare against all new products from bigger companies. ''The first real indication will come this spring,'' Mr. Hammond says. ''The K-cars will be directly assaulted by new Ford compacts - the Topaz and Tempo. If Chrysler is able to withstand that competitive challenge in good stead, it significantly increases their chances for long-term survival from a product standpoint.''