Jan. 24 (Bloomberg) -- The United Auto Workers union will end the so-called jobs bank for Chrysler LLC on Jan. 26 as a condition of the $4 billion U.S. loan made to the carmaker.

The union sent a letter to local presidents Jan. 22 ordering that workers be sent home from the program, which kept employees on the payroll even though they had no duties to carry out at the company. General Motors Corp. is also in discussions about a similar end to its 25-year-old program, said Tony Sapienza, a GM spokesman.

“It’s a powerful statement that the UAW has made about how far it’s willing to go to save the automakers,” said Harley Shaiken, a labor professor at the University of California, Berkeley. “There aren’t a lot of workers in the program any more, but it had become a symbol over the years of job security.”

More benefits changes may follow to appease the government in its effort to make Chrysler and GM viable. Union President Ron Gettelfinger said this week his group would meet cost-saving requests, including becoming “competitive” with some Japanese companies in U.S. labor costs by Feb. 17, when GM and Chrysler must report progress to the U.S. Treasury to keep $17.4 billion in loans.

Required by Treasury

The UAW already agreed to cut new worker pay in half and end fixed pensions in 2007 as part of an agreement that also relieved automakers from future union retiree health costs in exchange for a one-time contribution to a union-run fund.

The loan agreement with the Treasury Department includes a provision that “eliminates the payment of any compensation or benefits to employees that have been laid off, i.e. jobs bank,” the letter says.

The union agreed to suspend the jobs bank on Dec. 3 without officially disbanding it as Chrysler, General Motors and Ford Motor Co. sought federal assistance to prevent a failure. Several U.S. senators singled out the program as an unacceptable benefit.

The jobs banks gave the impression that UAW workers were among a “privileged few” at a time when they needed a taxpayer bailout, said Richard Block, a labor professor at Michigan State University in East Lansing, Michigan.

“It had become a political embarrassment for the industry,” he said. “The big loser in this will be the state unemployment insurance, which will pick up the costs now.”

Other Benefits

Jerry Dennison, president of Local 136 near St. Louis, confirmed receiving the Chrysler letter.

The document warns local presidents that loan terms may also affect other benefits, including health-care coverage and supplemental unemployment pay for workers who are furloughed.

Workers leaving the jobs bank will be placed on unemployment with supplemental pay. The UAW is “working out the details” on the agreement’s effect on provisions in the union contract relating to the supplemental pay.

Chrysler spokeswoman Mary Beth Halprin declined to comment on the letter. She said the number of workers in the program wasn’t immediately available.

GM is discussing a further change in the program similar to that outlined in the letter to Chrysler union members, Sapienza said. He declined to comment on details of possible changes or give the number of workers involved. In November, GM said it was about 1,000.

Extended Shutdowns

When GM union workers are laid off from factory jobs, they receive state unemployment and GM supplemental pay equal to about 72 percent of their normal compensation, Sapienza said. As those benefits expire, usually after about 48 weeks, workers would then qualify for the jobs bank, he said.

Employees under the program were traditionally paid 100 percent of their salary to report to a company location even if there was no work to perform, said Sapienza. As of late December, GM workers who qualify for the program stay home and receive 85 percent of their pay instead, he said.

GM and Chrysler have shut down most of their factories this month to reduce unsold inventory for their dealers. Chrysler extended shutdowns at three plants on Jan. 15 because of slowing sales, which GM said may fall below a 10-million unit rate this month, a 26-year low.

GM may announce additional production cuts, including the elimination of a shift at the Lordstown, Ohio, factory that makes Chevrolet Cobalt cars, the Wall Street Journal reported yesterday, citing union leaders and unidentified sources. Sapienza had no comment on production plans.

The jobs bank program started in 1984 as part of an agreement to help ensure that workers replaced by robots or other productivity improvements wouldn’t be fired, Shaiken said.

“For the UAW, the key now is preserving Chrysler and General Motors,” he said. “The jobs bank becomes less important.”

To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

Last Updated: January 24, 2009 00:01 EST