To win suit, car maker needs to show harm from alleged fraud in
Fiat's talks with UAW
By Mike Colias and Nora Naughton
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 27, 2019).
General Motors Co. has accused rival Fiat Chrysler Automobiles
NV of bribing union officials to gain a labor-cost edge, but
winning damages could be difficult, legal experts say.
GM sued Fiat Chrysler last week, claiming the Italian-American
car company purposely tried to hurt GM by paying off union
officials to win more-favorable contracts with the United Auto
Workers over the past decade. GM cited a long-running federal
corruption investigation that has led to convictions of several
union officials and guilty pleas from three Fiat Chrysler
employees.
Fiat Chrysler plans to fight GM's lawsuit, which it said is
without merit. The company, which last month agreed to a $50
billion merger with PSA Group of France, is in negotiations with
the UAW on a new four-year contract.
To win, GM will need to show that the alleged fraud that
prosecutors say corrupted the collective-bargaining process between
Fiat Chrysler and the UAW had a direct, negative impact on GM's
business, legal experts say. These types of racketeering lawsuits
face long odds and often are settled or dismissed before they go to
trial.
In a civil racketeering case, a court typically considers claims
from only the primary victim of the alleged corruption, said
Jeffrey Grell, an attorney who teaches about the Racketeer
Influenced and Corrupt Organizations Act, or RICO, at the
University of Minnesota.
Mr. Grell said the people harmed most in the UAW-Fiat Chrysler
corruption case are rank-and-file union members who ended up with
weaker contracts because union leaders allegedly accepted bribes
from the company. Even if GM can show that wrongdoing by Fiat
Chrysler officials hurt its business, it will be difficult to prove
that GM was the primary victim, he said.
"GM seems to be very far down that chain" of parties that claim
harm by the alleged corruption, Mr. Grell said. "This case faces
some unique challenges that make it even more difficult than a
normal RICO claim," he added.
In a written statement, GM said evidence of conspiracy and fraud
from Fiat Chrysler officials in the corruption case "identifies how
FCA's bribes directly harmed GM." The company expects to turn up
more evidence during the discovery process, it said.
GM's lawsuit alleges Fiat Chrysler, by bribing union officials
with money and gifts to win more-favorable contract terms,
"inflicted massive direct damage" on GM by allowing its rival to
benefit from lower labor costs. The companies compete head-on
across many categories of the U.S. auto market, including large
pickup trucks, which generate much of their profits.
GM claims the criminal activity was authorized by then-Chief
Executive Sergio Marchionne, whom it alleges directly targeted GM
in an attempt to weaken the company and force a merger. GM rebuffed
Mr. Marchionne's merger advances in 2015, a few months before Fiat
Chrysler signed a four-year labor contract with the UAW. Mr.
Marchionne died last year.
JPMorgan Chase estimates GM could seek damages of at least $6
billion, though it said the case could take years to play out.
Because damages in civil racketeering cases can be heavy,
defendants often are motivated to settle to avoid mounting legal
costs and the risk of losing, said John Kip Cornwell, a law
professor at Seton Hall University who has focused on RICO
lawsuits. The lawsuit alone can be damaging to the accused party's
reputation, he said.
Fiat Chrysler, historically the smallest and financially weakest
of the Detroit auto makers, rebounded from its 2009 bankruptcy to
reap solid profit growth in recent years. The company shed the last
of its bankruptcy debt in 2018 and has released a string of
successful trucks and sport-utility vehicles, helping boost its
North American operating-profit margin to above 10%, on a par with
that of GM.
Strong sales of its global Jeep brand and its lucrative Ram
pickup-truck business in the U.S. have helped Fiat Chrysler surpass
rival Ford Motor Co. in profits and become a more-direct competitor
to GM. Ram this year is on pace to outsell GM's top model, the
Chevrolet Silverado pickup truck, for the first time.
Fiat Chrysler also is set to strengthen its hand globally
through its planned merger with Peugeot maker PSA, a deal that
would create the world's third-largest car company by sales,
leapfrogging GM. Volkswagen AG ranks first by that measure,
followed by Toyota Motor Corp.
A GM spokesman said the timing of the lawsuit was unrelated to
the Fiat Chrysler-PSA deal or its contract talks with the UAW. GM
filed the suit last week because a four-year statute of limitations
on civil RICO cases was set to expire, the spokesman said.
Still, Fiat Chrysler's surge, along with the UAW's recent 40-day
strike at GM that cost the company an estimated $3 billion, likely
has the Detroit auto maker more worried about its Italian-American
competitor, Jefferies analyst Philippe Houchois wrote in an
investor note on Friday.
"GM came across as defensive, seeking compensation for a costly
strike, potentially trying to disrupt a pending FCA/UAW deal and no
longer seeing FCA as the 'weak link' " among the three Detroit
companies, Mr. Houchois wrote.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
November 27, 2019 02:47 ET (07:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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