AUBURN HILLS, Mich. — Sergio Marchionne drives a hard bargain. After all, the Fiat SpA chief executive officer gained control of Chrysler Group LLC in 2009 for nothing.
Now he may have met his match in his own boardroom.
Erickson Perkins, a close adviser to United Auto Workers President Bob King with an extensive Wall Street background, is on Chrysler's board as the representative of the union's retiree health-care trust. He and Mr. Marchionne are about to play a multibillion-dollar game of chicken that lines up this way:
Mr. Marchionne needs the trust's 41.5 percent of Chrysler to get full control and access to the automaker's cash, so he's a motivated buyer and Mr. Perkins knows it. At the same time, the trust has much of its assets tied up in stock that doesn't trade on any market. It can't pay its bills with shares of Chrysler, a company that required two government rescues in 30 years, so it's a motivated seller. Mr. Marchionne knows that, too.
At stake: Somewhere around $6 billion.
"You've got a savvy discount buyer in Marchionne, who got 60 percent of Chrysler for bargain-basement value, negotiating with a guy with Wall Street background that has impetus to wind his trust's equity stake down," Eric Selle, a JPMorgan Chase & Co. analyst, who advised Mr. Perkins during General Motors Co.'s bankruptcy process, said in a telephone interview. "It's going to be a tough negotiation."
Mr. Perkins, 57, is described by those who have worked with him as shrewd and analytical, with a knack for absorbing information. He joined Chrysler's board June 10 to represent the union's Voluntary Employee Beneficiary Association, or VEBA. The fund holds all the equity in Chrysler that isn't owned by Fiat.
For Italy's Fiat, which took control of Chrysler in 2009 without paying any cash and by agreeing to share small-car and powertrain technology, a full merger means access to its American partner's cash, a stockpile that had swelled to $12.1 billion by the end of the first half.
The U.S. car maker has been propping up Fiat as it piles up losses in Europe's auto market, which is headed for a fifth straight year of declines.
Asked by an analyst on Chrysler's second-quarter earnings call on July 31 if Fiat could access Chrysler's cash with the capital structure that's in place, Mr. Marchionne responded, "No. Firewalls are up; can't get to it."
The employee benefit association funds were created in 2007 to remove retiree health-care liabilities from the balance sheets and labor-cost estimates of Ford Motor Co. and the predecessors of GM and Chrysler.
The trusts for GM and Chrysler hourly retirees were allocated some ownership of the companies by President Obama's automotive task force during their 2009 bankruptcies.
By exercising options at a cost of $1.97 billion and meeting performance milestones, Fiat has boosted its ownership stake in Chrysler to 58.5 percent. The company said last month that its stake will rise to 61.8 percent by exercising an option to buy a small portion of the benefit fund association's holding every six months.
Mr. Perkins joined Chrysler's board after serving as a member of the national teams that bargained with all three U.S. automakers last year on new four-year contracts.
The UAW's Chrysler department was "in the toughest spot" of the teams during those negotiations, said Rich Boruff, chairman of that bargaining committee. The company was the worst-off financially of the three and argued it couldn't fit the pattern of GM and Ford.
The benefit association could be in an even more precarious position. A significant portion of the assets it has to pay for retirees' health care is its Chrysler equity and a $4.59 billion note that Chrysler issued to it in June, 2009, said JPMorgan's Mr. Selle. The association's equity stake may be worth $6 billion, he estimated.
"You're supposed to diversify a trust and not put all your eggs in one basket," Mr. Selle said. If Chrysler or the U.S. auto industry suddenly collapsed, the assets could be quickly depleted. "The guy running that trust has to be shaking in his boots every day," Mr. Selle said.
After seeing Mr. Perkins negotiate the UAW's national contract with Chrysler, Mr. Boruff said the benefit association chose the right person for the job.
"He's the only guy I felt comfortable sitting across the table from a guy like Sergio," Mr. Boruff said. "When Sergio and his group tried throwing numbers at us to say, ‘This is where we're at,' Eric countered and said ‘No, this is really where you're at.' He counters the discussion, and you can't respond to him because he's right."