UAW bid would face hurdles

WASHINGTON -- The head of the United Auto Workers said the union hasn't ruled out making an offer to buy the Chrysler Group, but experts are mixed on whether employee ownership makes sense for Chrysler.

In an interview Friday with WJR Radio in Detroit, UAW President Ron Gettelfinger said the union has reviewed a "very sketchy" proposal made earlier this month by a group of about 25 Chrysler employees in Toledo to acquire a 70 percent stake in Chrysler through an employee stock ownership plan, or ESOP, in exchange for health care concessions.

"Ever hear the statement 'all options are on the table?' " Gettelfinger responded when asked whether the UAW would bid for Chrysler. "We haven't ruled anything out."

Gettelfinger said the UAW still prefers Chrysler remain part of DaimlerChrysler, but noted the union had set up a "war room" to review the many proposals to buy Chrysler.

"We listen to people and we're certainly going to listen to our membership," he said.

Billionaire investor Kirk Kerkorian, whose Tracinda Corp. has made a $4.5 billion bid for Chrysler that includes giving union workers a stake in the company, has reportedly sought to meet with the group proposing employee ownership.

Kerkorian has said he envisions a "true partnership" with labor and management.

Analysts have mixed opinions on the value of ESOPs and whether one would work for Chrysler.

Despite some employees' enthusiasm for buying Chrysler, there have been a number of high-profile failures of employee-owned ventures.

Some critics don't like them because it puts employees at too much risk -- if a company goes bankrupt, they could lose their jobs and investments.

In 1974, Congress created the Employee Stock Ownership Program to encourage companies to allow employees to take a stake in their companies. ESOPs use a trust to hold company stock; the principal benefit is tax breaks for the company. Today, more than 1,400 ESOP companies together employ more than 1 million.

But notable ESOP failures -- among them Polaroid, United Airlines and Weirton Steel -- have dampened enthusiasm for them.

Louis Diamond, an adjunct law professor at Georgetown University who specializes in ESOPs, said the failures are often "because the companies that used them were struggling."

But, he said, just because some ESOPs haven't worked in the past, "there is no reason a (Kirk) Kerkorian couldn't take Chrysler over and move it back to success with an ESOP."

Wilbur Ross, a New York financier who heads International Automotive Group and bought Weirton when he was at International Steel, said ESOPs "can work very well if you have a lot of taxable income. He supports the incentives that an ESOP gives employees.

"The idea of giving the union and workers an upside is a good one. In our case, we have cash bonuses for productivity and for results, rather than for stock. I think the average worker would rather have a cash bonus."

A study by University of Pennsylvania business professor Steve Freeman that reviewed 30 years of employee-owned companies showed that they work.

"High-profile cases accentuate potential risks through lack of diversification, but most employee-owners are less vulnerable than counterparts," he wrote in the study, released in January.

David Healy, an auto analyst at Burnhan Securities, isn't a big ESOP fan.

He noted that Chrysler employees had gotten a 15 percent equity stake in the company's 1979 federal bailout in exchange for wage cuts. "Almost all of the employees sold the stock when they could," Healy said. "So much for employee capitalism."

He also said all of the private equity groups interested in buying Chrysler have offered the UAW an equity stake in exchange for concessions. DaimlerChrysler is in negotiations with several potential Chrysler buyers, including two of the country's largest private equity firms -- Cerberus Capital Management LP and Blackstone Group, which is working with Centerbridge Capital Partners. Also in the running is supplier Magna International Inc., which has partnered with Onex Corp., a Canadian buyout firm.

The workers promoting the employee-ownership plan say it is the best option for Chrysler's 50,000 UAW workers.

Chrysler said it is considering the proposal.

You can reach David Shepardson at (202) 662 - 8735 or dshepardson@detnews.com">dshepardson@detnews.com.