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GM sues Fiat Chrysler, alleging union bribes cost it billions

Stock Markets Nov 20, 2019 10:05PM ET
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© Reuters. The GM logo is seen at the General Motors Warren Transmission Operations Plant in Warren, Michigan
 
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By Nick Carey

DETROIT (Reuters) - General Motors Co (NYSE:GM) on Wednesday filed a racketeering lawsuit against Fiat Chrysler Automobiles NV, alleging that its rival bribed United Auto Workers (UAW) union officials over many years to corrupt the bargaining process and gain advantages, costing GM billions of dollars.

GM also alleged that Fiat Chrysler's former chief executive, the late Sergio Marchionne, was central in the scheme.

The No. 1 U.S. automaker said it will seek "substantial damages" from FCA that it said would be reinvested in the United States to create jobs, but did not specify an exact amount.

The lawsuit comes at a delicate time for FCA, which is working on a planned merger with French automaker PSA and is negotiating a four-year labor contract with the UAW.

FCA said https://media.fcanorthamerica.com/newsrelease.do?id=21397&mid=2 late on Wednesday that it would defend itself vigorously against the lawsuit.

"We are astonished by this filing, both its content and its timing," FCA had said in a statement earlier. "We can only assume this was intended to disrupt our proposed merger with PSA as well as our negotiations with the UAW."

FCA and PSA last month announced the planned 50-50 share merger to create the world's fourth-largest automaker, seeking scale to cope with costly new technologies and slowing global demand.

GM's general counsel, Craig Glidden, told reporters at GM's headquarters that the lawsuit has nothing to do with the planned merger of PSA and FCA and the automaker does not intend to file suit against the UAW.

PSA declined to comment.

The UAW has targeted FCA last out of Detroit's three automakers for contract talks. UAW workers at Ford Motor (NYSE:F) Co ratified a new contract last week, while GM workers approved a deal in late October that ended a 40-day U.S. strike.

"It (the lawsuit) can't help but complicate the already difficult task of getting a UAW-FCA agreement in place," said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research (CAR) in Michigan.

The UAW said in a statement, "We are confident that the terms of those contracts were not affected" by the actions of FCA or UAW officials. It said it was "regrettable" that these issues can cause doubts about the contracts.

The lawsuit also names as defendants three former FCA executives who have pleaded guilty in an ongoing federal probe into the UAW and FCA. GM said that probe, coupled with its own investigation, resulted in the lawsuit.

RACKETEERING

GM's Glidden said a "pattern of racketeering" by FCA from 2009 to 2015 left GM paying higher wages than Fiat Chrysler, and allowed the latter to use more temporary workers and lower-paid second-tier workers than GM.

"As part of this bribery scheme, and to lock in the competitive efficacy of the purchased benefits, concessions and advantages for FCA, GM was denied similar union commitments and support," the lawsuit states.

The lawsuit claims that among the "benefits, concessions and advantages illegally purchased by FCA" was UAW support for "World Class Manufacturing," a version of Toyota Motor Corp's lean production strategy but adapted to the culture of Italian automaker Fiat.

That system has been credited in part for helping to turn around struggling operations like FCA's plant in Toledo, Ohio, that makes the popular and profitable Jeep Wrangler.

The suit also claims that after a failed bid to take over GM in 2015, FCA corrupted the collective bargaining process by structuring terms through bribed UAW officials that "forced unanticipated costs on GM."

The lawsuit says that under the federal Racketeer Influenced and Corrupt Organizations Act (RICO), FCA would be liable to pay GM three times the actual damages caused, plus interest, punitive damages and attorneys' fees.

GM alleges that FCA, under the leadership of former CEO Marchionne, used bribes to UAW officials to corrupt the collective bargaining process from 2009 through 2015. Marchionne died in 2018.

Fiat took control of Chrysler after it emerged from a U.S. government-funded bankruptcy in 2009.

"Marchionne was a central figure in the conceiving, executing and sponsoring of the fraudulent activity," Glidden said.

When GM rejected a merger bid from FCA, the lawsuit alleges Marchionne conspired to negotiate a new four-year contract "designed, through the power of pattern bargaining, to cost GM billions."

The UAW has been the focus of a spreading federal corruption probe.

Gary Jones, the UAW president who recently had taken a leave of absence, on Wednesday resigned effective immediately just hours after the union said it would seek to remove Jones from office, a union source told Reuters.

Jones' lawyer Bruce Maffeo told the Detroit News the decision was based "on his belief that his continuing to serve will only distract the union." A UAW spokesman could not confirm the resignation.

Last week, the UAW's acting president unveiled a series of reforms designed to prevent further scandals.

Glidden said the automaker supports those reform efforts.

GM sues Fiat Chrysler, alleging union bribes cost it billions
 

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