Fiat Chrysler racketeering suit a ‘distraction’ from PSA, UAW talks

Fiat Chrysler racketeering suit a ‘distraction’ from PSA, UAW talks
Breana Noble, The Detroit NewsPublished 11:20 p.m. ET Nov. 22, 2019

General Motors Co.’s racketeering lawsuit against Fiat Chrysler Automobiles NV is a distraction for the Italian-American automaker in the middle of negotiations for a labor contract with the United Auto Workers union and for a merger with French automaker Groupe PSA, experts say.

GM alleges Fiat Chrysler’s late-CEO Sergio Marchionne orchestrated a multimillion-dollar conspiracy, including bribes, that corrupted three rounds of bargaining with the UAW. GM said it was harmed by that conspiracy in violation of the Racketeer Influenced and Corrupt Organizations Act. Fiat Chrysler has called the claims “groundless.”

FILE — The heads of the UAW and FCA sits at a table together before the ceremonial handshake to mark the beginning of negotiations between the United Auto Workers and Fiat Chrysler Automobiles at FCA’s North America headquarters in Auburn Hills.
FILE — The heads of the UAW and FCA sits at a table together before the ceremonial handshake to mark the beginning of negotiations between the United Auto Workers and Fiat Chrysler Automobiles at FCA’s North America headquarters in Auburn Hills. (Photo: David Guralnick, Detroit News)

The RICO case filed Wednesday comes as Fiat Chrysler negotiates some of its most complicated labor talks since its bankruptcy in 2009. The outcome of those talks have the potential to increase substantially its labor costs. And the RICO case could slow efforts to create the fourth-largest automaker in the world with a combination with the parent of Peugeot and Citroën.

“There is nothing positive that is coming out of this for FCA,” said Rebecca Lindland, founder of rebeccadrives.com, an auto industry and reviews website. “It’s a distraction that FCA doesn’t need.”

Nothing has been derailed so far. FCA representatives said talks with PSA and the UAW are ongoing.

“Subcommittees are meeting to look over the materials,” UAW spokesman Brian Rothenberg said Friday. The parties expect to continue labor talks next week.

PSA spokesman Bertrand Blaise declined to comment on how the lawsuit would affect the merger talks. Fiat Chrysler chairman John Elkann said at an investor event Thursday in Italy he still expects a memorandum of understanding for the combination to be reached before the end of the year, according to Bloomberg.

UAW members said they are waiting to see how labor talks progress, but they question the lawsuit’s timing: “I don’t understand why this is happening in the middle of our negotiations,” said Jerome Dobson, a 35-year worker in quality at Fiat Chrysler’s Sterling Heights Assembly Plant. “It didn’t come up when GM was out striking. It’s a little suspicious.”

Fiat Chrysler is suspicious, too.

“This astonishing ploy comes at a time when FCA is proving itself to be an ever more formidable competitor that continues to create significant value for all its stakeholders through the successful implementation of its long-term strategy,” the company said in a statement Wednesday night. “This includes the proposed merger with PSA, which itself completed the successful turnaround of the European businesses it acquired not long ago from General Motors.”

The timing of the lawsuit was not based on external factors, but on ensuring a level playing field going forward, Craig Glidden, GM executive vice president and general counsel, said Wednesday when the lawsuit was filed.

“The lawsuit has absolutely nothing to do with PSA’s proposed merger with FCA,” GM spokesman Jim Cain said.

But the suit could be one more obstacle to getting a deal done. A tie-up between Fiat Chrysler and Renault SA earlier this year collapsed after it failed to get the support of the French government, one of the largest shareholders in Renault and PSA. The government, however, is supporting the PSA deal, and representatives of the French trade unions gave a favorable opinion earlier this week.

The Trump administration, though, intends to review the proposed merger because the deal would give China’s Dongfeng Motor Corp., which owns 12% of PSA, a stake in the combined company. GM’s lawsuit is another complication, said Erik Gordon, a professor at the University of Michigan’s Ross Business School.

“If you’re PSA, you can’t say, ‘Oh, there’s no problem because FCA tells us this suit is baseless,'” he said. “You have to do your own investigation. That is going to slow things down in that negotiation.”

Both companies face increasing pressure in the marketplace to develop electric and self-driving vehicles, especially to meet strict European emissions regulations that otherwise could cost billions of dollars in penalties.

“Both want to have a merger, and they need it urgently,” said Ferdinand Dudenhöffer, a professor of automotive economics at the Center for Automotive Research at the University of Duisburg-Essen in Germany. “At least for Fiat Chrysler, if they don’t have this part now, which gives them a platform for electric vehicles, they have nothing available in my point of view.”

And Fiat Chrysler is running out of companies with which to partner.

“FCA has serenaded every automaker that would be a suitable partner,” Gordon said. “FCA has no bargaining power to pressure PSA into closing a deal with a RICO lawsuit hanging over FCA’s head.”

The racketeering allegations are based on the findings of a four-year federal corruption investigation into the UAW that has produced charges against 13 people and 10 convictions, including three FCA executives.

“It is already out there and making people nervous,” Art Schwartz, president of Labor and Economics Associates in Ann Arbor and the former general director of labor relations at GM, said of the UAW-FCA labor talks. “I don’t think this changes their game plan or how the UAW works. They’re worried about ratification anyways. They were worried at Ford even. But Chrysler turned (an initial tentative agreement) down last time, so it makes sense they would be a little nervous.”

As the third automaker in line to bargain, Fiat Chrysler has the least flexibility in altering the pattern set by GM and Ford Motor Co. The contracts at its crosstown rivals promise pathways for full-time and temporary employees hired prior to the ratification dates to reach the top of the wage scale by the end of the four-year agreement.

That would be costly for Fiat Chrysler, as these currently lower-paid employees represent 72% of its hourly U.S. manufacturing workforce, which excludes skilled trades. But since GM says Fiat Chrysler leaders bribed UAW negotiators for “sweetheart” deals that left GM with less favorable labor agreements, “it would be unwise for FCA to walk away with a contract that is more favorable than the contract GM got with the UAW,” Gordon said.

Ultimately, the goal is to get the contract ratified, preferably without a strike. Acting UAW President Rory Gamble was successful in doing so at Ford. He also has a list of reforms to address the findings of the federal corruption probe, including the creation of an ethics hotline and investigator position and more monetary controls.

“He is all over this,” Schwartz said. “There can’t be any hint of impropriety in these negotiations. Transparency is important for the UAW right now.”

bnoble@detrointews.com

Staff Writer Kalea Hall contributed.

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