Workers of Chrysler, disunited

Unions are split over news that a private investment fund is buying flat-tire Chrysler. The UAW deems it "in the best interest" of its members. The Canadian counterpart finds it "very worrisome." The opposite reactions reveal a telling ambivalence about this hot trend in corporate buyouts.

Private investors have long bought troubled, publicly held companies in hopes of turning them around and then profiting when they resell them on the market. What's new is the recent exponential growth in capital and profits of these investors, known as private equity funds. They're reshaping the American economy, having taken over such major companies as Cablevision, Burger King, hospital giant HCA, Toys "R" Us, and Neiman Marcus.

The Chrysler deal, in which private equity fund Cerberus Capital Management is paying DaimlerChrysler $7.4 billion for control of its US automaker, is notable for its scale. It's not just the size of the company, but the size of the challenge: fixing an American industrial icon that, like GM and Ford, is being battered by foreign competition and dragged down by retiree benefits.

Chrysler lost $1.5 billion last year and is still losing money. Part of the reason is it's not making vehicles people want. But another is it's just not cost competitive. Toyota enjoys a $30-per-hour labor cost advantage over Chrysler. More than half results from Chrysler's health, pension, and other retiree benefits – a burden Germany-based Daimler is happy to be rid of.

Workers can look two ways at the Cerberus takeover. Cutting benefits, and perhaps more jobs than the 13,000 already planned, seems inevitable. But what's the alternative? Bankruptcy – which could void union contracts? Offshoring – which would vaporize more jobs? Better a viable company than an extinct one is the likely and wise conclusion of Ron Gettelfinger, the United Auto Workers chief.

Leaving the stock market for a while has its advantages. New owners can escape the glare of Wall Street, which focuses relentlessly on quarterly results. They can take a longer-term view that allows room for needed adjustments to improve performance and growth. That long-term view is what Cerberus head John Snow, the former Treasury secretary, says he has in mind.

Then there's the view of Buzz Hargrove, the head of the Canadian Auto Workers. He's worried about the history of some private equity funds that "strip and flip" firms – bust unions, drastically cut costs, and sell quickly.

His anxiety is not baseless, partly because of several examples and partly because it's difficult to see what private equity funds are doing or intend. They aren't publicly owned, so they're not very transparent. That's why Congress is trying to better understand the funds' effect on workers and companies. The funds have caught the eye of the Justice Department, and the Securities and Exchange Commission is looking at possible illegalities.

Given the funds' influence and vast growth in value (more than eightfold in the past five years), knowing more about them and their effects on the economy would be useful. They have brought their investors rich returns. Perhaps a way can be found to better share those returns with workers who often sacrifice during turnaround times.