Chrysler to File for Bankruptcy

[MadImmortalMan]

The German corporate governance code for stock corporations (e.g. Volkswagen, Daimler, BMW, Porsche) necessitates that 50% of the supervisory board members are worker's representatives. The other half represents the stock owners. However, the stock owners always have the president of that board who acts as a tie breaker, i.e. 50%+1 vote. While the supervisory board does not interfere with daily operations it still chooses the CEO and other management board members and must agree with strategic decisions (such as opening a new plant, big aquisitions). So having workers representatives (usually mostly union bosses) on the supervisory board does not necessarily make an economic enterprise unviable.

I've heard of this before.  I'm curious, how does it work out in practice?  Does it lead to some unique German problems in corporate governance?

It sounds pretty good to me, but the difference is that in Germany the "workers' representatives" represent the workers and not some backroom gangsters and labor cartels. Plus, the rules under which unions operate there are different than they are in the US and, IMO, lead to a much better union service to the employees.

[Berkut]

The German corporate governance code for stock corporations (e.g. Volkswagen, Daimler, BMW, Porsche) necessitates that 50% of the supervisory board members are worker's representatives. The other half represents the stock owners. However, the stock owners always have the president of that board who acts as a tie breaker, i.e. 50%+1 vote. While the supervisory board does not interfere with daily operations it still chooses the CEO and other management board members and must agree with strategic decisions (such as opening a new plant, big aquisitions). So having workers representatives (usually mostly union bosses) on the supervisory board does not necessarily make an economic enterprise unviable.

I've heard of this before.  I'm curious, how does it work out in practice?  Does it lead to some unique German problems in corporate governance?

It sounds pretty good to me, but the difference is that in Germany the "workers' representatives" represent the workers and not some backroom gangsters and labor cartels. Plus, the rules under which unions operate there are different than they are in the US and, IMO, lead to a much better union service to the employees.

I cannot say I know a lot about how it works in Germany, but I would venture to guess that the German economic and labor model is sufficiently different from the US as to render the comparisons somewhat moot.

I could be wrong, but I think I will need more than "Yeah, but VW has employee owners and they do fine!" to be convinced that having the UAW run Chrysler or GM is a good idea.

[Zanza]

I've heard of this before.  I'm curious, how does it work out in practice?  Does it lead to some unique German problems in corporate governance?

I am not knowledgable enough to answer that question. However, Germany ranks very low in the OECD for days lost to strikes and there was also considerable real wage repression in the last decade or so. So it does not mean the unions necessarily plunder the companies. The workers representatives in my company just agreed to a (hopefully temporary) 8.75% wage and hour cut for all employees. This was in exchange to a job guarantee until the end of the year for all employees.

I cannot say I know a lot about how it works in Germany, but I would venture to guess that the German economic and labor model is sufficiently different from the US as to render the comparisons somewhat moot.

Most likely. I don't know enough about the US and its unions to make a valid comparison.

I could be wrong, but I think I will need more than "Yeah, but VW has employee owners and they do fine!" to be convinced that having the UAW run Chrysler or GM is a good idea.

I am with you on that.

[Admiral Yi]

Doesn't Germany have a national labor board that negotiates pay increases nationwide, like Scandilonia?

If so that would seem to be a major difference right there.

[Zanza]

Doesn't Germany have a national labor board that negotiates pay increases nationwide, like Scandilonia?

No, not national. A lot of industries do have regional wage bargaining agreements between union and industrial representatives though. E.g. my salary is determined by the wage bargaining agreement for the metal industry in the state of Baden-Württemberg. But Volkswagen or Deutsche Post for example are so big that they made their own agreement with the respective unions and don't follow the regional wage bargaining agreements.

These agreements usually leave some leeway to the worker representatives and management board at the individual companies. And if companies don't want to they don't have to participate in these regional wage bargaining schemes and can do their own thing. The software producer SAP for example is not unionized at all and only has individual contracts with each employee. However, in other industries the unions have usually forced their employers to participate in these regional bargaining agreements for their industry.

As an example for individual leeway: my company pays additional benefits that were agreed upon with the workers representatives.

If so that would seem to be a major difference right there.

Definitely.

[DontSayBanana]

Do you see any reason to believe a corporation owned and run by the UAWand the US government would be run "properly" going forward?

The new CEO the feds put in place seems to have his head screwed on straight.  the real question going forward will be when the UAW uses their equity stake to muck around with management decisions.  When that happens I agree it doesn't look good.

Fixed. Not happy about the whole directorship scheme, but I foresee the ones with the least formal economic training presenting the biggest problem in coming up with goals extending past the current and next fiscal years.

[Syt]

Zanza, do you guys still have the Steinkühler-break?

What I found galling was when a couple years ago when there was talk of re-introducing the 40 hour week for automobile workers one of employees' representatives said something along the lines, "Please remember we have many older employees over 45 - certainly not all of them are still capable of working 40 hours a week!"

At the same time, our company had 50 year old construction workers do 60+ hours in seven day weeks during crunch time.

[Zanza]

Zanza, do you guys still have the Steinkühler-break?

I think that was only for blue-collar workers working on assembly lines. Not sure if they still have that. Maybe.
Another funny thing: my company apparently only stopped having beer vending machines along the assembly lines in the mid 2000s. 

What I found galling was when a couple years ago when there was talk of re-introducing the 40 hour week for automobile workers one of employees' representatives said something along the lines, "Please remember we have many older employees over 45 - certainly not all of them are still capable of working 40 hours a week!"

At the same time, our company had 50 year old construction workers do 60+ hours in seven day weeks during crunch time.

Yes, it's ridiculous. I have a 35 hour week too and it would still be a very fair salary if I worked 40 hours.

[grumbler]

The German corporate governance code for stock corporations (e.g. Volkswagen, Daimler, BMW, Porsche) necessitates that 50% of the supervisory board members are worker's representatives.

Who chooses the workers' representatives?  Just curious.

I think a lot of people are confusing "employee ownership of stock" with "union ownership of stock" when they are two entirely different things.

[dps]

YUROPE OWNS THE USA!

Not the first time, but I can understand your excitement since it worked so well the last time a European company owned Chrysler.

I have no idea what you are talking about :p

The Germans owned 51% of Chrysler for about 5 years, then woke up one morning and said, "What were we thinking?  That was dumber than invading Russia while the British were still resisting!"   

[Barrister]

I think a lot of people are confusing "employee ownership of stock" with "union ownership of stock" when they are two entirely different things.

There are some obvious differences, but there are some similarities as well.

[Savonarola]

GM, Chrysler spar with House on dealer closings
By Justin Hyde • Free Press Washington Staff • June 12, 2009

WASHINGTON – U.S. House members vented their frustration at General Motors Corp. and Chrysler Group LLC's dealer closings today, demanding a fuller explanation of how the automakers made their choices and whether they would save any money.

As they did in a previous Senate hearing, executives from both automakers defended their decisions and the methods they were using to aid dealerships targeted to close, saying only a handful of dealers had refused help.

But lawmakers aggressively questioned the rationale and motivations behind the cuts, criticizing them as uncertain and unfair. Rep. Greg Walden, R-Ore., played a computer animation showing the 136-mile drive that GM customers in Burns, Ore., will now have to make to reach the nearest GM dealer for service.


"We have yet to get a clear answer on how this so-called rationalization will save the automakers and taxpayers money," Walden said


And a passel of dealers refutes the companies' claims, contending the criteria used by the automakers were unclear and made little business sense on either end. Frank Blankenbeckler, a dealer from Waxahachie, Texas, said he received letters from GM and Chrysler saying his Chevrolet and Chrysler franchises were being cut within a day of each other.


"In 24 hours, I was told that everything my family and I had worked for for 84 years would be taken away without any compensation," Blankenbeckler said.


The hearing, the second in two weeks on the plight of GM and Chrysler dealers, highlight the political sway that auto dealers command. Most auto dealerships are family-owned companies that typically rank among the largest local businesses in their areas – giving them a strong calling card with elected officials.


Auto dealers also contributed $9.2 million to federal political campaigns in 2008.


GM Chief Executive Fritz Henderson said GM's cuts of 2,200 to 2,500 dealerships would save the automaker $2.5 billion a year, adding that a majority of GM dealers were not profitable today. He emphasized the cuts made among GM's workers, investors and retirees, and said the Obama auto task force and many industry experts had long said GM needed fewer dealers.

GM said that from the 1,300 dealers it sent closure notices to as part of its bankruptcy, it had received 856 appeals and reversed 45 decisions. Henderson also said dealers who had signed "wind-down" agreements could not order 2010 model year vehicles. Those agreements were due back to GM today.


"GM's remaining dealerships will be better positioned to keep their current GM customers, while aggressively marketing to take sales from competitors," Henderson said.

The House Oversight committee released documents from GM showing that the company graded its dealers to decide which ones would be targeted to close, with sales accounting for half the score and customer service responsible for 30%. A state-by-state breakdown shows GM plans to close 58 dealers in Michigan.

Chrysler Group Deputy CEO Jim Press said the 789 dealer cuts Chrysler made earlier this week were necessary for Chrysler's survival, and were driven by its bankruptcy. He said Chrysler had not drawn up any plans for such cuts before it filed for bankruptcy last month, but had to move quickly given the speed of the sale to the partnership with Fiat SpA.

Press once again estimated the cost of the closed dealerships at $3.1 billion, including $1.5 billion in "lost" sales due to poor sales performance. He said Chrysler was trying to help closed dealers, and that of the 42,006 vehicles held by those stores, all but 220 had been transferred with the company's help.

"Going through bankruptcy was not our choice," Press said, adding "we've got 2,391 dealers in small towns, with Little Leagues, with employees, whose jobs were saved."

Press also defended comments he made during a conference call with dealers reported by Automotive News in February, where he pressed Chrysler dealers to order more vehicles and said the company "had a good memory" of which dealers would help the company.

Press said the statement was not meant as a threat.

"I would never threaten a dealer," he said. "I would say that under any oath."

GM and Chrysler have long maintained they would need fewer dealerships, but have been hamstrung from making such broad cuts under a bevy of state franchise laws that force automakers to buy out dealers they want to close. Press said Honda Motor Co. and Toyota Motor Co. sold three times more vehicles per dealer than Chrysler had.

But Henderson said GM would continue to hear appeals from dealers.

"The process is intended to be data driven, but the data isn't always right," he said. "There are cases where we are wrong."

Contact JUSTIN HYDE: 202-906-8204 or [email protected].

I'm curious to see if anything comes of this.  Obama has said he has no interest in running a car company, but the political pressure car dealerships can exert on congressmen might change that.

[Zanza]

Who chooses the workers' representatives?  Just curious.

The employees except senior management in elections that are held every four years. You don't have to be a union member to run in these elections, but as unions are usually better organized they often win most seats. The senior management elects one or two representatives for the supervisory board too but they have their own elections.

[Berkut]

But lawmakers aggressively questioned the rationale and motivations behind the cuts, criticizing them as uncertain and unfair. Rep. Greg Walden, R-Ore., played a computer animation showing the 136-mile drive that GM customers in Burns, Ore., will now have to make to reach the nearest GM dealer for service.

I'm curious to see if anything comes of this.  Obama has said he has no interest in running a car company, but the political pressure car dealerships can exert on congressmen might change that.

Christ, this would be funny if it was an Ann Rand novel.

Oh no, the government won't stick its nose into business decisions just because they own the companies, gosh no! The argument that it is possible for them not to do so is basically arguing that NONE of the 700+ members of Congress would ever take it upon themselves to do so.

And I am sure when the UAW gets a stake, THEY won't do that either.

[ulmont]

Christ, this would be funny if it was an Ann Rand novel.

Ayn, damn you.  But no.  Nothing about an Ayn Rand novel could ever be funny, except the putting the book away.