General Motors Files Racketeering Lawsuit Against Fiat Chrysler -- 4th Update

Date : 11/21/2019 @ 12:32AM
Source : Dow Jones News
Stock : Fiat Chrysler Automobiles (FCA)
Quote : 13.076  -0.072 (-0.55%) @ 4:35PM

General Motors Files Racketeering Lawsuit Against Fiat Chrysler -- 4th Update

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By Nora Naughton and Christina Rogers 

General Motors Co. accused Fiat Chrysler Automobiles NV of bribing union negotiators to gain a competitive advantage, triggering an unusual legal dispute between crosstown rivals by filing a federal racketeering lawsuit.

Separately, the head of the United Auto Workers union resigned Wednesday after the UAW's board publicly accused him of submitting false and misleading expense reports and concealing the misconduct. Gary Jones earlier this month took a leave of absence as UAW president amid a federal investigation into union corruption.

The GM lawsuit relates to a federal investigation into corruption between leaders at the UAW and labor-relations executives at Fiat Chrysler. In its suit filed in Michigan, 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.

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 and that led to guilty pleas by three Fiat Chrysler employees. 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 of 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.

Industry analysts say they can't recall the last time one Detroit car company sued another, especially over dealings with the UAW.

"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.

While historically the three major U.S. car companies have avoided such legal tussles, the competitive landscape has become more unpredictable 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."

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 its lawsuit, alleges that Fiat Chrysler orchestrated the alleged corruption through Mr. Marchionne. The suit lays out efforts by Fiat Chrysler to forge an alliance with the UAW that would provide special benefits to the auto maker, going back to when Mr. Marchionne first sought to acquire bankrupt Chrysler Group LLC in 2009.

The UAW said Wednesday it has taken steps to prevent misconduct by its officials 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 employees 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 Mr. Jones. His home in Michigan was searched by federal agents in August. Mr. Jones, who became UAW president in June 2018, has not been charged.

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. His attorney, Jerome A. Ballarotto, hasn't previously returned requests for comments.

Bruce Maffeo, Mr. Jones's attorney, said his client made the decision to resign as UAW president and retire from the union before learning of the board's decision to force his removal.

Rory Gamble, the UAW's top bargainer with GM and now acting president, said Wednesday that the union remains committed to implementing new ethics reforms and financial controls.

Write to Christina Rogers at christina.rogers@wsj.com

 

(END) Dow Jones Newswires

November 20, 2019 19:17 ET (00:17 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.


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