As labor standoffs go, this week's UAW strike against Chrysler breaks new ground: For the first time, one of the Big Three US automakers is guided by the free-wheeling style of ownership known as private equity.
As much as any recent shift, this one signals toworkers that the industry is under extraordinary pressure to remake itself. This isn't your daddy's Detroit.
Under private ownership, Chrysler gives its managers incentives to be more concerned about cost-cutting and profitability – and less concerned about public image – than would a company with publicly traded shares.
This doesn't mean that the new Chrysler is out to bust the United Auto Workers union. The strike that started Wednesday is expected to end with a deal for UAW workers to ratify, as did a brief recent strike against General Motors. But it does add to a climate in which concessions are expected.
"Change is the name of the game," says Michelle Krebs, senior editor at Edmunds AutoObserver.com. "The rules of the game have totally been rewritten, and nobody knows what the rules are."
Already, private ownership has been transforming the auto-parts industry.
Delphi, America's largest auto-parts supplier and a former GM unit, is preparing to emerge from bankruptcy under the wing of several private-investor groups. UAW workers will see big pay cuts and the closing of half the company's US plants. Those moves paved the way for a plan in which private-equity firms will plow more than $2 billion into the restructured company.
Union pay cuts were also a key part of the bargain as Tower Automotive, another large partsmaker, exited bankruptcy this summer. Tower is owned by Cerberus Capital Management, the same private equity firm that bought Chrysler this year.
Chrysler is not in as bad financial shape as many suppliers are. But the same pressures of global competition are in play.
"They've certainly signaled that if they don't get what they want, they might outsource" production abroad, Ms. Krebs says.
When Cerberus cut a deal to acquire Chrysler from Germany's Daimler in May, the buyout won tentative approval from the United Auto Workers.
The union had no say in the deal and had expressed misgivings about the notion of private-equity ownership. But UAW president Ron Gettelfinger said the deal offered Chrysler workers their best shot at job security.
"In a way, it represents an opportunity for labor," says David Brophy, who runs the Center for Venture Capital and Private Equity Finance at the University of Michigan's Ross School in Ann Arbor. For a struggling company, Cerberus is "fresh cash that's expressing an interest."
At its best, the buyout offers the prospect that a nimble management team can redefine Chrysler's product lines, which have suffered in recent years in part because of the declining popularity of minivans.
The company has brought in new management talent, including Jim Press from Toyota's North American operations, to aid this effort. At the same time, the new team has signaled a likely reduction in the number of models produced. And like other carmakers, Chrysler is trying to become more global: It cut a deal with Chinese automaker Chery to build a small car for export to the US.
Analysts aren't expecting a drawn-out strike. After several weeks, a strike would begin to affect the availability of Chrysler vehicles, especially popular ones like the Jeep Wrangler. That kind of sales slowdown is in the interest of neither labor nor management.
The UAW launched the walkout at 11 a.m. Wednesday, but the strike did not include five of the company's 10 US assembly plants, which have recently been idled by Chrysler itself in an effort to work down inventories.
The issues are similar to ones the union faced in talks with GM: cutting healthcare costs to help the carmaker compete with Asian-owned rivals and seeking to ensure that as many jobs remain in the US as possible.
GM workers, in votes across the country this week, have nearly ratified their new contract.
A deal at Chrysler would affect some 49,000 US factory workers and more than 77,000 retirees or surviving spouses.
The burden of rising costs for retiree healthcare is expected to be reduced through the same approach tried at GM. Chrysler would hand the burden to the union, in effect, by paying into a trust fund that the union would administer to pay for those medical costs.
In addition, Chrysler wants to win healthcare concessions that GM and Ford got from the UAW a couple of years ago.
In all this, a key question is whether private ownership will make managers less willing to compromise. The buyout firms typically set executive pay so that CEOs win big if the company's restructuring succeeds and win little if it doesn't. Typically, companies are resold in a public stock offering within a few years.
The business model has had some successes, but many of the deals are still too young for a verdict to be rendered.
Many in organized labor doubt that the trend, on balance, helps the US economy and workers .
"Private equity is a euphemism for leveraged buyouts," says Damon Silvers, associate general counsel at the AFL-CIO labor federation in Washington. "With some exceptions, it's not the form of finance or governance that is likely to lead to the best long-term outcome for firms." The auto industry, in particular, poses challenges with its long product cycles and heavy capital investments.
UAW workers "don't know how much Cerberus really knows about the auto industry," Mr. Brophy says. "These things will be revealed as we go forward."