Autos

GM racketeering lawsuit complicates FCA merger plans, UAW talks

Key Points
  • GM's federal racketeering lawsuit against Fiat Chrysler adds to an already tumultuous time of corruption and disruption for the global auto industry.
  • The lawsuit, filed Wednesday, could complicate Fiat Chrysler's merger plans with French automaker PSA Group and for UAW talks, according to officials.
  • GM is seeking damages in the billions.
Sergio Marchionne, chief executive officer of Fiat Chrysler Automobiles NV (FCA), left, and Dennis Williams, president of the United Auto Workers union (UAW) embrace during the start of labor negotiations at the UAW-Chrysler National Training Center in Detroit, Michigan, U.S., on Tuesday, July 14, 2015.
Jeff Kowalsky | Bloomberg | Getty Images

DETROIT – General Motors' federal racketeering lawsuit against Fiat Chrysler adds to an already tumultuous time of corruption and disruption for the global auto industry.

The lawsuit, filed Wednesday, could complicate Fiat Chrysler's merger plans with French automaker PSA Group and piles on to an unprecedented round of contentious contract negotiations between the United Auto Workers and Detroit automakers.

"This is very aggressive. GM is kind of going all in and attacking Fiat Chrysler," said Peter Henning, a former federal prosecutor and Wayne State University law professor in Detroit. "This is going to be a fight."

In the lawsuit, GM alleges it was harmed as a result of "corrupted" collective bargaining involving Fiat Chrysler leaders bribing union officials into taking company-friendly positions that resulted in unfair labor costs and operational advantages. It argues that although the UAW uses "patterned" bargaining, GM did not receive the same benefits as the Italian-American automaker.

GM is seeking unspecified damages in the billions that, according to the lawsuit, "will be used for investment in the United States to grow jobs and for the benefit of employees."

VIDEO0:4500:45
GM files lawsuit against Fiat Chrysler, alleging corrupt bargaining with UAW

A company such as GM deciding to accuse a rival of violating the Racketeer Influenced and Corrupt Organizations Act is "certainly odd," according to Henning. He said it will likely be difficult for GM to prove that it was directly harmed by the corruption between the UAW and Fiat Chrysler, which was initially unearthed in 2017 as part of a federal corruption investigation.

"General Motors has made money hand over fist for the last decade. They can complain about their labor costs and somehow claim Fiat Chrysler got a sweetheart deal, … but I'm not sure how much harm GM is going to be able to show. Did it hurt their bottom line?" Henning said. "That's one of the requirements for a RICO lawsuit."

GM general counsel Craig Glidden said in a statement Wednesday that the lawsuit "is intended to hold FCA accountable for the harm its actions have caused our company and to ensure a level playing field going forward."

'Impossibly complicated'

Much of the lawsuit centers on the late-Fiat Chrysler CEO Sergio Marchionne, who unexpectedly died in 2018 and has been implicated in the federal probe.

GM alleges Marchionne, who publicly and privately pushed for a merger or takeover of GM, and others paid off union leaders to support his efforts and purposely disadvantage GM regarding labor costs and practices.

Mark Fields, president and chief executive officer of Ford Motor Co., speaks as Mary Barra, chief executive officer of General Motors Co. (GM), left, and Sergio Marchionne, chief executive officer of Fiat Chrysler Automobiles
Andrew Harrer | Bloomberg | Getty Images

Fiat Chrysler said in a statement Wednesday night that it will "defend itself vigorously against the lawsuit," which it called "nothing more than a meritless attempt to divert attention from that company's own challenges." The company, in an earlier statement, said it assumed the suit was intended to disrupt its proposed merger with PSA as well as ongoing negotiations with the UAW.

Glidden told reporters on a conference call Wednesday that the lawsuit has no bearing on the merger discussions between Fiat Chrysler and PSA Group. He also said the lawsuit won't affect existing collective bargaining agreements, and that there are no current allegations against Fiat Chrysler CEO Michael Manley.

Fiat Chrysler is the last of the three Detroit automakers to have to bargain with the union. Following workers voting down an initial leadership-approved deal during the last round of negotiations four years ago, the federal corruption probe and the potential merger with PSA were expected to make this year's talks difficult. The lawsuit is expected to add even another layer of complexity to that, according to officials.

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"It complicates an already impossibly complicated situation," said Art Wheaton, a labor expert at the Worker Institute at Cornell University. "Fiat Chrysler was already going to be a nightmare just because of all the differences that have happened."

Kristin Dziczek, vice president of Industry, Labor & Economics at the Center for Automotive Research, agrees: "The talks were already going to be really, really difficult. I don't know if there is a further degree of difficulty possible."

UAW president resigns

The lawsuit was filed hours before the union's executive board announced actions to remove UAW President Gary Jones and another leader from their positions and the union.

Jones took a leave of absence from the union on Nov. 3, days after being implicated as part of a multiyear federal investigation into corruption in the UAW. Jones has not been charged by U.S. prosecutors, but federal agents raided his home in August.

Mary Barra, chairman and chief executive officer of General Motors Co. (GM), right, and Gary Jones, president of the United Auto Workers (UAW), shake hands during a GM event at the Renaissance Center in Detroit, Michigan, U.S., on Tuesday, July 16, 2019.
Jeff Kowalsky | Bloomberg | Getty Images

The union on Thursday confirmed that Jones, through his attorney, submitted his resignation. The other official, UAW Region 5 Director Vance Pearson, has not resigned.

The union in a statement Wednesday reiterated that it does not believe its collective bargaining was impacted by corrupt officials, citing "multiple layers of checks and balances" and members having final voting rights on the deals.

"That said, the fact that these issues can cause doubt about the contracts is regrettable," the union said. "The UAW leadership is absolutely committed to making whatever changes are necessary to ensure on our end the misconduct that has been uncovered will never happen again."

UAW spokesman Brian Rothenberg on Thursday confirmed negotiations with Fiat Chrysler are ongoing.

Ford Motor, which also followed contract patterns set by Fiat Chrysler, declined to comment on whether the company is looking to take similar action against Fiat Chrysler.

The federal probe into corruption of the UAW has led to charges against 13 people, including seven convictions of people affiliated with the union and three Fiat Chrysler executives.

- CNBC's Ganesh Setty contributed to this report.