GM goes to war against FCA

DETROIT — When Sergio Marchionne and UAW President Dennis Williams opened contract talks in 2015 with a bear hug instead of a handshake, assembly workers recoiled at the idea that their union and employer were getting too cozy.

The truth was more sinister, General Motors now claims.

Marchionne, stymied by GM's refusal to entertain his merger proposal, had been bribing Williams and other UAW officials for years, GM says in a stunning federal lawsuit filed last week. The suit contends that the Fiat Chrysler Automobiles CEO was "using the UAW as the hammer" to make GM reconsider.

Hours after the hug, GM says, Williams and some of his underlings — including the union's chief FCA negotiator, later sentenced to prison after admitting to taking FCA's bribes — celebrated at Detroit's London Chop House with an $8,000 meal on FCA's dime.

FCA vehemently denied GM's allegations, accusing its domestic rival of trying to thwart this year's UAW negotiations and undermine its planned merger with PSA Group of France.

The suit, arguing that FCA corrupted the bargaining process over the course of a decade to put GM at a labor-cost disadvantage while suppressing wages for thousands of its hourly workers, seeks potentially billions of dollars in damages. FCA went from having the highest labor costs of the Detroit 3 in 2006 to the lowest in 2015 by paying union officials to give it better deals, GM says.

Suing FCA and three of its former executives wasn't "a decision that we made lightly," GM CEO Mary Barra said at an investor conference last week. But without a "level playing field," she said, "we had to take action."

Marchionne, who died in 2018, "was a central figure in the conspiracy," said GM's general counsel, Craig Glidden. The three executives GM is suing — Alphons Iacobelli, Jerome Durden and Michael Brown — have pleaded guilty in a federal corruption probe. GM specifically excluded the UAW as a defendant, though six former union officials also have pleaded guilty, with former Vice President Joe Ashton expected to do so next week.

FCA, in a statement, said it was "astonished" by the lawsuit and its timing, as the company works toward merging with PSA and finalizing a four-year labor contract with the UAW.

Glidden told reporters that GM wanted to file the case within four years of the 2015 labor contracts that it believes were corrupted. Not until January 2018, when Iacobelli's plea agreement with the federal government became public, were details of the scheme and its effect on GM exposed, the complaint says.

FCA funneled "millions of dollars" to certain UAW leaders, starting in July 2009, GM says in its lawsuit. The payments were designed to give FCA an unfair advantage in bargaining, it says, citing Iacobelli's admission of that, and "GM did not and could not have reasonably discovered this information earlier despite due diligence."

Marchionne had long sought a merger partner. After GM rejected his overtures, FCA conspired with the UAW to weaken GM to make the merger proposition more appealing, GM alleges. GM says Marchionne called it Operation Cylinder, which is presumably a reference to the circular towers that house the company's headquarters in downtown Detroit.

Marchionne and General Holiefield, the UAW vice president who negotiated the union's contract with FCA in 2011, were close friends, documented by a photo of a lively embrace between the two in 2009. Secretly, GM says, Marchionne treated Holiefield to lavish dinners, paid for his 2012 wedding in Venice, Italy, and got the couple's mortgage paid. Holiefield, who died in 2015, used his personal charity to conceal many of the bribes, the lawsuit says. His wife, Monica Morgan, pleaded guilty to taking bribes through her photography business and was sentenced last year to 18 months in prison.

A month after Chrysler emerged from bankruptcy in 2009, Iacobelli and other FCA executives paid Holiefield hundreds of thousands of dollars, considered as an investment in "relationship building," GM says, citing Iacobelli's indictment.

Marchionne also gave Holiefield a custom-made Terra Cielo Mare watch worth several thousand dollars, with a handwritten note saying he had declared its value as "less than fifty bucks," GM says.

By 2014, the UAW's new president, Dennis Williams, a friend of Marchionne since the early 2000s, also was in on the conspiracy, the lawsuit says. Marchionne wanted to take over GM and run the combined company as its CEO, the lawsuit says, but needed UAW officials on his side because they could block the merger.

GM rejected FCA's offer in April 2015, two weeks before Marchionne published a manifesto called "Confessions of a Capital Junkie." In it, Marchionne said an FCA-GM merger would save nearly $5 billion without laying off employees.

That June, just before the formal start of UAW negotiations, Iacobelli abruptly stepped down from his post as FCA's vice president of employee relations. Marchionne assumed Iacobelli's place at the bargaining table across from Williams, Vice President Norwood Jewell and other leaders GM says FCA had bribed. Jewell recently was sentenced to 15 months in prison.

Williams and Cindy Estrada, the UAW's vice president in charge of relations with GM at the time, advocated for the merger proposition in a meeting with GM brass later that month, the lawsuit says.

The UAW's initial contract demands in 2015, GM says, would have cost about $1 billion more than the 2011 agreement. As the largest and most profitable of the Detroit 3 at the time, GM believed it would be the primary negotiation target, typically an advantageous position because it sets the pattern that the other two companies generally follow. GM had been the target in 2007 and 2011.

This year, being selected first backfired on GM, when the UAW went on strike for 40 days.

GM says that early in the 2015 talks, it was homing in on a deal with an incremental cost of about $800 million.

Then the UAW named FCA as its target, surprising much of the industry. GM says the FCA-UAW deal it had to follow instead resulted in a contract with an incremental cost of nearly $2 billion.

"With cooperation of UAW leadership purchased through bribes," the lawsuit says, "Marchionne schemed to use the collective bargaining process to harm GM by becoming the lead in negotiations and attempting to force a merger of the companies."

Marchionne called FCA's contract with the UAW, negotiated over just two days, "transformational."

The economics of the deal, he said when it was announced, were irrelevant because the costs "pale in comparison given the magnitude of the potential synergies and benefits."

Williams called the 2015 FCA deal "one of the richest ever negotiated" and labeled the bargaining process with FCA a "testament to the UAW's democratic values and commitment to our members." He retired in 2018 and has not been charged with a crime, but agents raided his home in August.

When he chose FCA as the 2015 target, Williams told a GM executive he would explain why when he retired but has not done so, the lawsuit says.

GM says UAW officials, in return for the bribes they received, refused to give the company concessions that they agreed to with FCA.

For example, the UAW allowed FCA to employ more temporary and lower-paid, second-tier workers than GM was allowed.

GM agreed in 2011 to reinstate a pre-bankruptcy cap on second-tier workers in 2015, meaning that those in excess of the limit would be bumped up to top wages. But FCA made a "side letter" deal with the union that the number of second-tier workers would remain unlimited, GM says.

"FCA hired tier-two workers with abandon, possessing the incredibly valuable foreknowledge that it would not be penalized by any reinstatement of the cap," GM's complaint says. "By 2015, tier-two workers made up around 42 percent of the UAW membership at FCA — double the proportion of tier-two workers at GM."

Today, more than half of FCA's workers don't receive top pay, according to the Center for Automotive Research in Ann Arbor, Mich. If FCA follows the pattern of GM's and Ford's 2019 labor contracts, all current in-progression workers would get to top pay by 2023.

In another instance, the UAW agreed in 2014 to a new prescription-drug list that significantly reduced FCA's health care costs. GM requested the same deal, which would have saved it up to $20 million a year, but the UAW refused, GM says.

From 2011 to 2014, FCA cut its labor costs by $8 an hour while doubling the gap between its costs and GM's, the lawsuit says.

Ultimately, GM asserts, the nearly decadelong scheme "helped buy a wage advantage to take FCA from worst to first among the Detroit-based automakers."