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Will labor costs kill the Chrysler-Fiat partnership?

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Reports have surfaced in London that Italian automaker Fiat is ready to walk away from the Chrysler deal. The bone of contention is high labor costs. The Italian firm has given the U.S. auto firm and Canadian and American labor unions until the end of the month to "significantly reduce labor costs." This revelation was made in an interview of Fiat's CEO Sergio Marchionne in the Canadian newspaper the Globe and Mail. Fiat wants Chrysler to lower the labor costs to Japanese and German plants levels.

The problem facing Chrysler is that the deal with Fiat is its last chance to stay out of bankruptcy. With Fiat ready to walk away from the deal, the North American unions had better agree to the demands or face some job losses. Let's not forget that Chrysler was given 30 days to complete the merger with Fiat or the American firm would be cut off from the government funding it is currently existing on.

Marchionne has one major thing working in his favor -- time. As the end of April looms, I have a feeling that the unions will understand their members face unemployment and may give in to Fiat's demands. We all know that unions can be stubborn, but I have a feeling that the possibility of lost jobs will outweigh the possibility of less pay.

No matter the outcome, one thing is certain: this is not the time for the labor unions to try and make a stand. If they do, we will see Chrysler forced under. I have a feeling that Marchionne will not back down as he is in the position of power here -- would you fold in poker if you held a royal straight flush? I think not. It would be best for the unions to fold and live to play another day rather than face losing it all.

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Last updated: November 26, 2009: 09:27 PM

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