By Nora Naughton
General Motors Co. filed a federal racketeering lawsuit
Wednesday against Fiat Chrysler Automobiles NV, accusing it of
corrupting union negotiations in an unusual legal dispute between
crosstown rivals.
According to court documents filed in Michigan, GM's suit is
related to a federal investigation into corruption between leaders
at the United Auto Workers and labor-relations executives at Fiat
Chrysler. GM accuses its rival of corrupting the collective
bargaining process in 2011 and 2015, as well as implementation of a
2009 agreement, to solidify a labor cost advantage for Fiat
Chrysler in its contracts.
More specifically, the Detroit auto maker alleges Fiat Chrysler
executives obtained advantageous contract terms from the UAW by
paying off union leaders, a corruption scheme that federal
prosecutors have been investigating for several years. GM said the
bribes were authorized by then-Chief Executive Sergio Marchionne,
who died last year.
Fiat Chrysler said it would defend itself against what it called
a "meritless lawsuit" and accused GM trying to interfere with
ongoing UAW negotiations and the Italian-American auto maker's
proposed merger with France's PSA Group.
GM will ask for "significant damages" from Fiat Chrysler after
the discovery phase of the lawsuit is complete, GM chief legal
counsel Craig Glidden said Wednesday. He said there are no plans to
target the UAW as part of the lawsuit.
"This is really unprecedented," Kristin Dziczek, an economist
and labor expert at the Center for Automotive Research in Ann
Arbor, Mich., said of GM's legal attack.
The lawsuit lands at a sensitive time for Fiat Chrysler, which
is negotiating a new four-year labor agreement for roughly 47,000
blue-collar workers at its U.S. factories and exploring a tie-up
with PSA that if completed would create one of the world's largest
auto makers. The French group's brands include Peugeot, Citroën and
Opel.
Fiat Chrysler is trying to navigate the fallout of the criminal
probe into its dealings with the UAW and restore confidence among
rank-and-file members, who have the final say over any labor
agreement reached during the current contract negotiations.
"This puts a lot more pressure on bargaining at FCA, which was
already going to be challenging," Ms. Dziczek said.
Fiat Chrysler, the smallest of the Detroit car companies, has
long benefited from comparatively low labor costs, The advantage
over its rivals stems in part from its having a higher percentage
of temporary workers and more union-represented factory employees
earning less in pay because they were hired more recently.
Fiat Chrysler currently has an $8 hourly labor cost advantage
over GM.
GM, in the lawsuit, alleges that Fiat Chrysler orchestrated the
alleged corruption through Mr. Marchionne. The suit lays out a
conspiracy by Fiat Chrysler to forge an alliance with the UAW that
would uniquely benefit the auto maker, going back to when Mr.
Marchionne first sought to acquire bankrupt Chrysler Group LLC in
2009.
The UAW said it has enacted reforms and financial controls to
prevent misconduct from occurring again. The union added it is
confident labor contracts negotiated over the last decade weren't
compromised and emphasized that each one was ratified by the
membership.
The UAW secured a new labor agreement with GM last month after a
40-day strike that crippled the company's U.S. factories and sent
tens of thousands of workers to the picket lines. The union also
recently finalized a deal with Ford Motor Co. and has turned its
full attention to contract talks at Fiat Chrysler. Ford declined to
comment on GM's lawsuit.
The Justice Department's yearslong probe first became public in
July 2017 and initially focused on a conspiracy by Fiat Chrysler
executives to keep UAW officials "fat, dumb and happy," as
prosecutors have said.
The three executives named in GM's lawsuit, including the former
top labor-relations executive at Fiat Chrysler, have all pleaded
guilty to charges related to the federal investigation. Fiat
Chrysler has said the misconduct was perpetrated by a small group
of individuals acting in their own interest.
The federal corruption probe has since widened, ensnaring
several current and former UAW officials, including UAW President
Gary Jones, who is currently on a leave of absence.
Former UAW Vice President Joe Ashton, who also previously served
on GM's board of directors, was charged earlier this month with
fraud and money laundering. GM said it wasn't aware of any
wrongdoing by Mr. Ashton.
Mr. Ashton's attorney, Jerome A. Ballarotto of New Jersey,
hasn't previously returned requests for comments.
Shares of Fiat Chrysler fell 3% in midday trading Wednesday, and
GM"s stock dropped 2.4%.
Industry analysts say they can't recall the last time one
Detroit car companies sued another, especially over dealings with
the UAW.
While historically the three major U.S. car companies have
avoided such legal tussles, the competitive landscape has become
more treacherous lately with global auto sales slowing and
car-sector profits under pressure, said Jeff Schuster, president of
global forecasting at LMC Automotive.
'You're going to look after your interests first," Mr. Schuster
said. "GM wants to protect their business and reputation."
(END) Dow Jones Newswires
November 20, 2019 16:09 ET (21:09 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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