What does UAW do with 55 percent of Chrysler?

Before you go, we thought you'd like these...
Before you go close icon

As creditors, the United Auto Workers Union, the managements of GM (GM) and Chrysler, and representatives of the Treasury go through round after round of negotiations, one thing is becoming clear. The federal government is going to own big pieces of both companies as it injects capital needed to get each firm through the year. The union will also hold big equity stakes in both companies.

How does the UAW ever get cash for its equity? It will need the money to fund pensions and medical care for its members.

In GM's case, the Treasury and UAW will end up with stock in a public company. The stake will be so large that it will not be terribly liquid, but at least it trades on the NYSE. That means that the shares could eventually be sold off. But in Chrysler's case, the ownership will be in a private company, which presents the problem of how taxpayers and union members can eventually get their money back.

According to Reuters, "The United Auto Workers will eventually own 55 percent of stock in a restructured Chrysler under a deal reached by the two." But there is no specific provision for turning that stake into cash.

What the UAW will probably have to do is sell the right to buy some or all of its piece of Chrysler to another large car company, probably Fiat, which is going to manage Chrysler and get a 35 percent share. Unless it can get an agreement along those lines, its share in Chrysler will be very hard to monetize. And that may up being the sticking point in negotiations. The UAW cannot pay members' medical bills with shares in a private company.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Read Full Story

Markets

S&P 500 2,203.71 11.76 0.54%
DJIA 19,236.29 65.87 0.34%
NASDAQ 5,301.86 46.21 0.88%
DAX 10,684.83 171.48 1.63%
HANG SENG 22,505.55 -59.27 -0.26%
NIKKEI 225 18,274.99 -151.09 -0.82%
USD (per EUR) 1.07 0.02 1.44%
USD (per CHF) 1.01 0.00 -0.42%
JPY (per USD) 114.12 0.62 0.55%
GBP (per USD) 1.27 0.00 0.30%

From Our Partners