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Federal raids on auto union set stage for unprecedented contract talks with Ford, GM, Fiat Chrysler

Key Points
  • Federal raids on the homes of United Auto Workers leaders have thrust the union's collective bargaining with Detroit automakers this year into unprecedented territory.
  • The raids occurred at six locations in four states, including the homes of UAW President Gary Jones and former UAW President Dennis Williams.
  • The searches confirm that the Department of Justice is widening its probe to current UAW leaders that the union has adamantly denied had anything to do with the "misdeeds of a few bad apples."
FBI agents finish loading materials into a truck out of the home of United Auto Workers President Gary Jones on Wednesday, Aug. 28, 2019.
Michael Wayland / CNBC

DETROIT – Federal raids on the homes of United Auto Workers leaders and union-owned properties on Wednesday have thrust the union's collective bargaining with Detroit automakers this year into unprecedented territory.

The ongoing negotiations were expected to be contentious amid the multiyear probe and tightening economy, but the raids, including on the Michigan home of UAW President Gary Jones, create a new level of mistrust, uncertainty and concern for both sides of the table, according to industry officials.

Most notably, the Wednesday raids confirm that the Department of Justice is widening its probe to current UAW leaders that the union has adamantly denied had anything to do with the "misdeeds of a few bad apples," as Jones' predecessor, UAW President Dennis Williams previously characterized the corruption.

"Already difficult bargaining has been made much more difficult," said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, Michigan.

Williams' home in California was also raided as part of the multistate effort involving the FBI, IRS and Department of Labor's Office of Inspector General. Other locations included a UAW-owned resort and conference center called Black Lake in northern Michigan; a local regional director's home and UAW office in Missouri, where Jones previously served as regional director; and the Wisconsin home of Williams' former administrative assistant, Amy Loasching.

The home of United Auto Workers union President Gary Jones on Wednesday, Aug. 28, 2019 after federal agents raided the home.
Mike Wayland | CNBC

The raids are believed to be an expansion of a roughly four-year investigation into labor relations corruption, including bribery and kickbacks, that has already led to the convictions of eight officials affiliated with the union and Fiat Chrysler. Charges were also filed earlier this month against Michael Grimes, a former UAW official assigned to the union's General Motors department, for allegedly receiving $2 million in kickbacks from UAW vendors.

Whether the raids unearthed damaging evidence against current union officials is arguably irrelevant for this year's negotiations, according to Art Wheaton, a labor expert at the Worker Institute at Cornell University.

"It doesn't matter if it's true or not. It's already done the damage," he said. "Even creating the sense of inappropriate or illegal behavior creates problems."

Growing mistrust?

The largest problem created by the investigation could be the trust rank-and-file workers have in the ability of UAW leaders to negotiate a fair contract in their best interest, according to officials.

"The federal investigation swirling around the contract makes getting that contract ratified much more difficult," Dziczek said.

Wheaton agreed, "The investigation only hurts the confidence and the ability for the membership to believe the leaders have their best interest at heart."

As part of the union's collective bargaining, rank-and-file members vote to approve each tentative agreement reached by bargaining committees for the automakers and union. Historically, the process has gone smoothly with union members voting to support the leadership-approved contract.

FBI agents walking into the home of United Auto Workers President Gary Jones after removing materials from the location on Wednesday, Aug. 28, 2019.
Michael Wayland/CNBC

However, that wasn't the case during the last round of negotiations four years ago when workers with Fiat Chrysler rejected an initial deal and sent bargainers back to the table – prolonging negotiations and nearly causing a strike.

One longtime local UAW official and former bargainer who asked not to be identified due to the fear of repercussions described workers on the factory floor as "disappointed," "angry" and distrusting of "anybody involved in the process."

Strike possible

Following the search warrants being executed, the UAW, in a statement, condemned the raids as unnecessary, citing the union and its leadership "have always fully cooperated with the government investigators in this matter."

The union also attempted to soothe any concerns of members and shift focus to the negotiations: "Trust in UAW leadership is never more important than during the bargaining process, when profit-laden auto companies stand to benefit from media leaks, false assumptions, and political grandstanding," read the statement. "The sole focus of President Jones and his team will be winning at the bargaining table for our members."

The federal investigation and raids this week may cause UAW leaders to be more aggressive against the companies in an effort to prove they are doing everything they can to negotiate a fair contract, according to Wheaton. That includes the increased possibility of a strike, he said.

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Investigators are expanding the probe into UAW

"I think they'll still be able to get to a contract but I think they're going to have a short strike, which can be extremely scary," he said. "Sometimes it takes some outside encouragement such as a strike to get a contract ratified."

National or targeted strikes at GM, Ford Motor or Fiat Chrysler would be detrimental to business. In 2007, a two-day strike against GM stopped production at more than 80 facilities in the U.S., costing the automaker more than $300 million a day, according to Buckingham Research Group.

This year's negotiations will set the wages and benefits for 158,000 auto workers and lay out the investment plans in the coming years for the companies. Current contracts expire Sept. 14, however, it's common for that deadline to be pushed back weeks, if not months.