GM Suing Fiat Chrysler, Charging Corruption That Affected UAW Talks

The Editors

From Car and Driver

  • General Motors has filed a lawsuit in U.S. District Court in Detroit, accusing Fiat Chrysler Automobiles (FCA) of racketeering related to the automaker's relationship with the United Auto Workers.
  • Specifically, GM said it accuses FCA of paying "millions of dollars in bribes" to get concessions and advantages from the UAW.
  • The Detroit Free Press, reporting on the lawsuit, said that among FCA executives named in the lawsuit is the late CEO Sergio Marchionne.

Seething after a five-week UAW union strike that shut down production lines and ate up a billion dollars in revenue, General Motors has sued Fiat Chrysler for fraud, alleging that its rival's bribery scheme with the United Auto Workers forced the company to spend billions more on labor costs.

The lawsuit, filed Wednesday in Detroit's U.S. District Court, targets the union indirectly by basing its fraud claims on an ongoing racketeering investigation involving FCA executives and UAW leadership. Since the Justice Department went public with its investigation in 2017, no fewer than 13 FCA and UAW officials have been charged with crimes. Four UAW officials are currently serving prison sentences for their roles in funneling payments from FCA that were intended for the union's worker training funds into lavish personal expenses.

Now that federal prosecutors have revealed more evidence, GM claims the two labor contracts it signed with the UAW—in 2011 and its last contract that expired months before, from 2015—were part of a "systemic and near-decade-long conspiracy" between the UAW and FCA to corrupt its bargaining process and "cost GM billions."

In response, FCA said that it is "astonished" by the lawsuit's timing as the automaker prepares for a merger with the PSA Group.

"We can only assume this was intended to disrupt our proposed merger with PSA as well as our ongoing negotiations with the UAW," the automaker said in a statement.

The UAW tried to distance itself from the federal corruption probe and its jailed executives by claiming there were "multiple layers of checks and balances" while negotiating the FCA contracts.

"That said, the fact that these issues can cause doubt about the contracts is regrettable. The UAW leadership is absolutely committed to making whatever changes are necessary to ensure on our end the misconduct that has been uncovered will never happen again," the union said.

According to the complaint, GM blames former FCA CEO Sergio Marchionne, who died in 2018, for orchestrating illegal payments and gifts to the union in return for dramatic cuts to labor rates that GM was unable to negotiate. The UAW negotiates separate contracts with each of the three domestic automakers, all of which expire in the same year, and typically picks the best-performing automaker at that time to create a model contract for the other two. While it's legal for unions to pressure companies into signing similar contracts that other companies have ratified—a tactic that worked Ford into a quick agreement after GM relented last month to the UAW's terms—GM claims the UAW chose FCA to negotiate first in 2015 because Marchionne wanted to punish GM for rejecting his merger proposal that year. GM said that FCA's internal plan, called "Operation Cylinder," "was a regret Marchionne took to the grave" and that the UAW "weaponized pattern bargaining, not to protect the interests of the UAW’s workers, but to advance FCA Group’s interests by promoting Marchionne’s merger."

GM claims that Marchionne, as part of Fiat's no-cash takeover of bankrupt Chrysler in 2009, began cozying with union leadership in an effort to hire more temporary workers and lower-cost full-time workers, known as Tier 2, to boost profits. According to GM, in 2015 FCA negotiated labor costs to an average of $47 per hour including benefits after having the "highest hourly labor costs" in the industry in 2006. GM's costs were $8 more per hour, the company said, a "wage advantage" that "continues to this day."

During the previous contract period, FCA conspired with the UAW by hiring more Tier 2 workers than the 25-percent allowable limit placed on FCA and GM, according to the lawsuit. In advance of the 2015 contract, FCA had hired 42 percent of its union workforce as Tier 2 because it knew the union's conditions ahead of time and allegedly would not face repercussions for violating the current contract because of the bribes, GM said. During this time, GM said it had kept its Tier 2 limit and thus faced higher costs. GM also said it had asked for lower prescription drug coverage that FCA had secured in 2015 but that the UAW did not allow the same for GM.

The automaker said that the "final [collective bargaining agreement] between GM and the UAW cost approximately $1.9 billion in incremental labor charges over four years—over $1 billion more than the deal GM believed it had reached with the UAW before the UAW’s selection of FCA as the lead."

Photo credit: Bill Pugliano - Getty Images

In the lawsuit, GM published photos of Marchionne hugging former UAW vice president General Holiefield, who died in 2015. He allegedly accepted a watch worth thousands of dollars from Marchionne who then listed its value below $50, according to the lawsuit. GM also claims that FCA paid for Holiefield's wedding in Italy. Prosecutors targeted Holiefield for funneling more than $260,000 in FCA and union funds to pay off his mortgage and another $200,000 to buy furniture and jewelry. His widow, Monica Morgan, is serving 18 months in prison for using these funds, diverted through the couple's charities and businesses, to pay for personal expenses.

The FCA-UAW probe remains ongoing. GM said it will use the lawsuit's expected damages "to benefit GM’s employees and grow jobs" in the U.S.

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