01 February 2011

Chrysler plans to pay UAW workers a $750 "performance award"

Next week Chrysler plans to pay its UAW and CAW employees an average "performance award" of $750, based on the automaker's 2010 operating profit of $763 million. This all comes at a surprise to investors given the fact Chrysler lost $652 million after interest expenses and other restructuring obligations.

Workers who get paid by salary, except for the top 50 executives of the company, also will receive the award, a Chrysler spokeswoman said early in the week. Because the company still has debt of $5.8 billion to the feds, the U.S. Treasury can restrict senior management's compensation.

"The obligation to our people was much greater than the need to improve our bottom line profitability." said the company's CEO Sergio Marchionne."It was absolutely owed that we treat our people properly,"

Praising the idea of the performance award is Chrysler's VP of the UAW department, General Holiefield.

"This certainly shows the character of the new Chrysler to give recognition to the UAW Chrysler workforce," said Holiefield. He also mentioned that some employees would receive a payment in excess of the $750 average, while other workers would receive less, depending on their eligibility.

The Michigan automaker reported a $199 million net loss for the last quarter, but a $198 operating profit when interest expenses and taxes are excluded.

For the entire year of 2010 Chrysler reported a net loss of $652 million, but a better than projected operating profit reaching $763 million.

The core reason for the company's large difference in net loss and operating profit is the interest expense due to government loans. That interest accumulated to $329 million in the fourth quarter and $1.23 billion for all of 2010. CEO Sergio Marchionne has spoken with investment bank Goldman Sachs about ways to refinance some of those loans at a lower interest rate.

Such financial adjustments likely occur before Chrysler can follow through with an IPO that would allow the U.S and Canadian governments to sell shares in Chrysler. The U.S. owns 9.2% and Canada owns 2.3%.

Marchionne and CFO of the company Richard Palmer said Chrysler projects to earn a net profit of between $200 million and $500 million for 2011, without having to refinancing the federal loans. Excluding interest expense, management expects its operating profit to more than double from $763 million last year to $2 billion in 2011.

But the burden of Chrysler's financial aid from the government remains heavy. Palmer added that those loans carry an average interest rate of 11%.

Chrysler's loan interest could see an increase this year. The automaker is waiting for word from the U.S. Department of Energy on an application for a $3.5 billion loan, which would fund new projects to improve the fuel economy of future vehicles.

Last week, neighboring automaker Ford said it would award its 40,600 UAW workers an average of $5,000 in profit-sharing. Chrysler has not paid profit-sharing since 2005, when its UAW workers received an average of $650.

Marchionne elected to the call the payment "performance award" rather than "profit-sharing", because it is difficult to mention profit sharing when you have a negative figure at the bottom line, he added.

Chrysler reported a net loss of $199-million for the fourth quarter, but an operating profit of $198-million when interest expenses and taxes are excluded.

“I want to express my gratitude to everyone for their hard work as we move forward towards the achievement of our goals,” Marchionne said in his e-mail. “You are the authors of this success. I want to thank you for your dedication, your creativity and your willingness to embrace change without which these results would not have been achieved. "

For the full year, Chrysler reported a net loss of $652 million, but a better-than-expected operating profit of $763 million. Additionally, the company still maintains key relationships with large clients, in sectors like transportation services and auto transport.

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