The independent trust that will oversee retiree heath care will have 55 percent equity in Chrysler LLC, but that does not necessarily translate into a majority voting share in the company, nor does it mean the United Auto Workers will be calling the shots in a restructured Chrysler.
"Equity stake doesn't translate into voting control," said Harley Shaiken, labor professor at the University of California Berkeley.
Two people familiar with the negotiations confirmed that the health care trust's equity stake will not translate to voting rights control over Chrysler.
UAW workers continue to vote on a tentative agreement reached Sunday night with Chrysler as a condition of federal aid for the automaker, with results expected tonight.
A negotiation sticking point was funding of the Voluntary Employees' Beneficiary Association or VEBA, to oversee retiree medical benefits starting Jan. 1.
The U.S. Treasury demanded half of the value received by the VEBA from Chrysler be in the form of stock. To meet that requirement, the health care trust will receive 55 percent of the stock in the restructured Chrysler but the classification of the stock could mean it does not warrant majority control.
Potential alliance partner Fiat SpA will start with 20 percent and eventually own 35 percent. The final 10 percent was to be allocated to lenders and the government, although the agreement being voted on by bankers gives them $2 billion in cash in exchange for their debt.
This equity picture will be vastly different from the ownership Chrysler has had since 2007 with Cerberus Capital Management LP as the majority stakeholder with 80.1 percent and Daimler AG with 19.9 percent. Daimler announced Monday an agreement to relinquish its stake. Cerberus will have no interest in a restructured Chrysler.
Shaiken said while there will be union representatives on the VEBA board, their fiduciary responsibility is to protect retiree health care. The only benefit to the union is protection of funds for workers once they retire.
"Why 55 percent is critical and a major victory for Chrysler workers is it ensures health care will be adequately funded," Shaiken said. "If Chrysler fails, workers are in big trouble."
The UAW agrees. In a liquidation, it said, the VEBA funding would likely have been completely eliminated, which would have meant an immediate and permanent termination of all retiree medical coverage.
The governance structure of a revamped Chrysler is not yet known, but the expectation is the union will be offered at least one seat on the board.