The United Auto Workers union is about to embark on one of the riskiest adventures in the 72 years since its founders won recognition from General Motors by turning a fire-hose on police during a strike in Flint, Michigan.

In what is less a victory than a coming-to-terms with reality, the union is likely to emerge as one of the biggest shareholders in the three Detroit carmakers: GM, Ford Motor and Chrysler.

It could end up with 55 per cent of Chrysler, 39 per cent of GM and a sizeable stake in Ford if it accepts shares rather than cash for a chunk of the companies’ contribution to new union-managed healthcare trusts, due to be set up next year.

The carmakers’ financial woes have forced them to back away from their 2007 promise to fund the trusts entirely with cash.

The prospect of union bosses in the boardroom has sent shivers down investors’ spines. The main front-page picture in the business section of Canada’s Globe and Mail newspaper on Wednesday showed a line of workers in blue jeans and T-shirts at a Chrysler plant in Detroit under the headline: “Meet the new board of directors”.

But the UAW’s ability to influence the groups will be more limited than the scale of its shareholdings suggests. Moreover, there is evidence that it will not wish to be an activist investor.

The UAW will receive only one seat on Chrysler’s board, and the Ford family will remain firmly in control of their company through multiple voting shares. The details of the GM deal have yet to be nailed down.

Furthermore, each fund, known as a Voluntary Employees’ Beneficiary Association (Veba), will be managed by independent trustees with a fiduciary responsibility to protect retirees’ benefits.

In keeping with the low profile that union leaders have maintained throughout their talks with the carmakers, the UAW has given no inkling of how it will behave as a shareholder. But union watchers predict that it will be less confrontational at the boardroom table than at the bargaining table.

“I suspect that the union will find it a sobering responsibility”, says Peter Feuille, director of the Institute of Labour and Industrial Relations at the University of Illinois.

One reason is that the security of its members’ future healthcare benefits depend on the performance of the trusts and, to a large extent, on the value of the shares. John Russo, a labour professor at Youngstown State University in Ohio, explains: “If you’re the owner of the stock, you’re probably going to do everything possible to make the company profitable, because you have a direct interest in the enterprise”.

Ron Gettelfinger, the UAW president, is no stranger to the corporate world. He sat – uncomfortably, by most accounts – on the board of Daimler during the time that the German carmaker controlled Chrysler. The UAW has retained Lazard, the Wall Street investment bank, as a financial adviser for the past four years.

Mr Gettelfinger has taken a pragmatic approach as Detroit’s woes have deepened; often talking tough but retreating from once-sacrosanct principles to preserve jobs. The union has agreed to more flexible work practices and sweeping cuts in medical and other benefits.

The union lost 33,000 members last year, bringing its membership down to 431,000, the lowest since the second world war and less than a third of the 1970s peak.

Veba trustees in other sectors have made diversification a key element of their investment strategy. Should the managers of the GM, Ford and Chrysler trusts follow suit, they are likely to sell most if not all their shares when the carmakers are on the road to recovery. The big question is how long they will have to wait.

Copyright The Financial Times Limited 2018. All rights reserved.

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