How GM ended up suing its crosstown rival Fiat Chrysler

DETROIT — Automakers sue each other on occasion, but no one in Detroit can remember one accusing another of bribing union officials to get an unfair labor cost advantage.

Yet that’s what happened Wednesday when General Motors filed a federal racketeering lawsuit against Fiat Chrysler Automobiles.

It’s based on a widening federal investigation into corruption involving officials of the United Auto Workers union, and shortly after the lawsuit was filed, the union’s president Gary Jones stepped down.

The 95-page complaint could affect ongoing contract talks between the union and Fiat Chrysler, the lone automaker of Detroit’s big three that’s still in negotiations. It also could cause jitters with French automaker PSA Peugeot, which has reached an agreement to merge with the Italian-American automaker.

Here are some questions and answers about the lawsuit and its impact:

Why did GM sue?

GM alleges that Fiat Chrysler senior executives, including now-deceased CEO Sergio Marchionne, paid $1.5 million in bribes to UAW officials for nearly a decade and corrupted the bargaining process with the union in the 2009, 2011 and 2015 contracts to gain advantages over General Motors.

The lawsuit says that because of the bribes, which were funneled through a joint UAW-Fiat Chrysler training center, the union allowed Fiat Chrysler to use more lower-paid temporary workers. Also, FCA in 2015 did not have to limit the number of newly hired workers who make less and get lower-cost benefits than older workers hired before 2007.

GM contends it couldn’t negotiate similar union concessions that FCA was able to get through bribery. GM could only hire a limited number of temporary and lower-paid new workers, called “second tier” workers, which unfairly increased its labor costs by billions of dollars. It alleges the higher labor costs had another purpose — to force GM into a merger with FCA that Marchionne wanted.

GM did wind up with higher labor costs, which until the lawsuit had not been linked to the federal corruption probe. Before contract talks with all three automakers began last summer, the Center for Automotive Research, an industry think tank, determined Fiat Chrysler’s total hourly labor costs including wages and benefits were about $55 per hour, $8 less per hour than GM and $6 lower than Ford.

At a Wall Street conference in New York on Thursday, GM CEO Mary Barra said her company can compete on a level playing field.

“So when we saw facts that indicated that was not the case, we felt it was in the best interest of all of our stakeholders in the company, our employees, our dealers, our suppliers and our owners, many of you, that we had to take action,” she said.

J.P. Morgan analyst Ryan Brinkman estimated in a note to investors that GM could seek $6 billion to $15 billion in damages. In a racketeering case, a plaintiff can get triple the actual damages, Brinkman wrote.

 

What is Fiat Chrysler’s response?

The company’s chairman, John Elkann, told reporters in Italy Thursday that Fiat Chrysler is not worried about the lawsuit and would fight it in court. FCA issued a strongly worded statement Wednesday calling the case “meritless.” CEO Mike Manley, in a letter to employees Thursday, said the lawsuit rehashes allegations and “at first review, beyond unsupportable speculation, does not include any new factual allegations.”

Manley urged employees to keep their performance up “as it has clearly got some of our competitors worried.”

 

Will the lawsuit affect FCA’s proposed merger with PSA?

The two companies announced the merger late last month that, if finalized, would create the world’s fourth-largest auto company worth $50 billion.

FCA accused GM of trying to disrupt the merger, and Elkann was quoted by Italian news agency ANSA as saying there would be a memorandum of understanding with PSA by the end of the year, as previously announced.

PSA wouldn’t comment.

 

What does the lawsuit mean for current contract talks?

Fiat Chrysler is the last of Detroit’s Big Three automakers still working out a new contract. Ford workers ratified theirs last week, while the union settled with General Motors last month after a 40-day strike by 49,000 workers that shut down the company’s U.S. production.

Workers already were suspicious of the UAW’s leadership because of the federal corruption probe, which has resulted in charges against 13 people thus far. Norwood Jewell, a union vice president who negotiated a contract with FCA, is in prison. Prosecutors alleged that the company paid off a $262,000 home mortgage for another vice president, General Holiefield, who also was responsible for negotiating with Fiat Chrysler. He died in 2015.

“They’ve been selling us out every contract,” said Mike Booth, president of a UAW local at an axle plant in Marysville, Michigan, north of Detroit.

That local has sued Fiat Chrysler and the union, alleging that FCA bribed union officials so it could get the plant’s ownership transferred to a parts company that would pay lower wages.

Still, Booth doesn’t think workers will go on strike against Fiat Chrysler. Union members, he said, usually go along with the pattern agreement negotiated with the first company to bargain.