UAW and Washington to own GM and Chrysler

With the recent decline of the Pontiac brand (hardly a surprise after Rick Wagoner's "modest" plan to sell of brands was deemed too conservative by Washington), there has been a flurry of activity. GM management proposed that Washington do a debt to equity swap with GM (for a 50% equity stake) and the UAW is looking to own a bigger piece (reported at 39% more).

The UAW is also looking to purchase up to 55% of Chrysler, with Fiat taking 35% and the rest picked up by the U.S. government and others. I think this is now an extremely exciting area to watch. The union essentially owns the company now with a controlling share and it will be interesting to see what happens next.

As I had previously mentioned in a post earlier this month, I wondered what would the next steps Chrysler would do to save themselves. I am happy to see the union pick up more ownership of the company. Although the unions had made some concessions, they were able to negotiate such that no changes were made to base pay while they gave up some other benefits (tuition reimbursements etc).

The capitalist markets seem to be doing what they are supposed to (despite the intervention of government) by lowering capacity of businesses that are becoming less relevant. However, I also understand the public's general concern when something in which a lot of value is built in over a long period of time begins a precipitous decline. This is exactly what Chapter 11 restructuring is supposed to do.

While I am happy with the proposed improvements, they are hardly out of the woods yet.