How deep a cut will Chrysler unions accept?

Cerberus, in a $7.4 billion deal to buy control of the automaker, will try to turn it around.

from the May 15, 2007 edition

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Still, his comment doesn't mean smooth sailing ahead. Whatever the union negotiates with Chrysler could ripple out to affect its pacts with Ford and GM.

And the union won't willingly cast aside hard-won pay and benefits that have long been among the best at any North American factories. But without some significant concessions, analysts say the Big Three may be doomed to a future of shrinking sales and dwindling jobs.

One estimate, done in 2004 by the Center for Automotive Research in Ann Arbor, Mich., found that higher pay and benefits add about $1,300 to the cost of each car made by the Big Three, compared with the North American operations of rivals such as Toyota and Honda.

Retiree healthcare costs are also large and rising – and much higher for the Big Three than for its younger rivals. Asian competitors also have more flexibility in worker job categories, which helps translate into greater plant efficiency.

In all, the per-car cost gap between the Big Three and nonunion assembly plants – mostly in the South – is about $2,400 to $3,500, says Tony Faria, a professor at the Odette School of Business at the University of Windsor, Ontario.

That gap makes it harder for the Big Three to invest in solving another urgent problem: refreshing and repositioning their product lineups at a time of growing demand for fuel efficiency.

"They have to cut costs everywhere in the operation," Mr. Faria says. But in no area is that effort more difficult than in labor costs, he says.

The US union, and its Canadian counterpart, have been resisting such cost-cutting. But in the end, that reluctance could translate into lost jobs as the Big Three remain at a competitive disadvantage, analysts say.

"The union doesn't get it," says Peter Morici, a University of Maryland economist who follows the auto industry. Meanwhile Chrysler, he says, is lagging behind its peers in vehicle quality and reliability.

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