Magna, Onex after Chrysler
Magna International Inc. chair Frank Stronach says Chrysler faces job cuts if his company and Onex Corp. take control of the ailing auto maker.
In confirming a formal bid with Onex for the first time, Stronach told reporters yesterday money-losing Chrysler Group will need changes to become profitable again and that will mean fewer jobs and an overhaul in labour relations.
"I think that will be unavoidable," he said about job cuts, speaking after the annual shareholders meeting of Magna Entertainment Corp. "Sometimes, when you are sick, you've got to take some drastic measures. And that's unfortunate."
Chrysler, an arm of DaimlerChrysler AG, employs more than 81,000 workers in Canada, the U.S. and Mexico.
Earlier this year, the company announced it would cut 13,000 production and office jobs before the end of 2009, including 2,100 in Canada.
Stronach, who controls Aurora-based Magna, did not reveal how much employment levels would need to drop or whether Chrysler would close more plants. Chrysler has 11,000 employees in Canada.
At the same time, Stronach noted Chrysler could eventually grow again and create jobs.
Buzz Hargrove, president of the Canadian Auto Workers union, said he didn't anticipate any further cuts here because Chrysler's operations are efficient and productive.
The CAW and the United Auto Workers have said they want German-based DaimlerChrysler to keep Chrysler but if it sells the company, a group including Magna would be a preferable suitor.
The unions fear major U.S.-based equity firms that are considering bids for Chrysler would "strip and flip" the auto maker for a quick profit at the expense of thousands of jobs.
Stronach also said if his company and Onex succeed in a bid he would insist on profit sharing, a hallmark of Magna's culture, and other changes to boost innovation and productivity.
"That would be automatic," Stronach said of profit sharing. "You must create an attitude, you must create an environment. We want them to be part-owners and we want them to be competitive."
He stressed that improvement in labour relations "will determine" if Chrysler survives.
Stronach also repeated the need for a "framework of fairness" between management and labour at Chrysler. Magna and its unions are currently working on such an arrangement at the company's Canadian and U.S. plants.
As part of that deal, the CAW and the UAW would get easier access to Magna plants by eliminating divisive organizing drives. Instead, the company would allow workers to vote immediately on first contracts that foster co-operation for more innovation and efficiencies.
Regarding the bid for Chrysler, Stronach would not disclose the size of Magna's stake under a new ownership structure but said it would not increase the company's debt.
"Keep in mind, we've got $2 billion (U.S.) in cash in the bank," he said. "I will not gamble Magna away for Chrysler."
He described the bid as "financially, a very viable concept" with backing from major banks in addition to Toronto-based Onex.
"Everyone knows how averse I am to debt," he said, reflecting on Magna's brush with bankruptcy in the early 1990s.
Stronach noted Magna would not need to be in control of Chrysler "as long as the framework for corporate governance is solid."
Magna and Onex would also welcome other partners in the buyout group, he said.
Reports have suggested that suitors would start bidding at $4.5 billion to $5 billion while DaimlerChrysler values the North American arm of the company at between $8 billion and $9 billion.
Stronach said Magna, the world's third-largest auto parts maker, does not want to compete against its customers. But there are many joint ventures between major auto makers now, he added. "I think as the world evolves, it's more crucial to have strategic partners."
Magna already operates a paint shop for a Chrysler assembly plant in the U.S. The company also assembles models at a plant in Austria for some auto makers in the European market.
It has sought a deal with an auto maker to build complete vehicles in North America for several years.
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