Lawsuit claims broad conspiracy between Marchionne, UAW that damaged GM

DETROIT — General Motors' racketeering lawsuit alleges that Sergio Marchionne, the late Fiat Chrysler Automobiles CEO, wanted to hurt GM in an effort to force a merger. His tool of choice was the 2015 contract talks.

Marchionne, the suit says, "formally solicited GM for a merger" in the spring of 2015 and was rejected. From there, the suit alleges that Marchionne orchestrated a negotiation of the collective bargaining agreement that was "designed, through the power of pattern bargaining, to cost GM billions."

This was done, according to the suit, with the "purchased support of certain former UAW officials including then-President Dennis Williams."

In 2015, "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."

Those 2015 contract talks took place as federal investigators were looking into past FCA-UAW agreements and other potential misconduct. Williams and Marchionne, the suit says, were aware of the investigation.

The suit alleges that with a "self-described 'rich' FCA-UAW labor contract, Williams and certain corrupt UAW leaders could seek to convince government investigators that they had obtained significant FCA concessions, while Marchionne could impose unanticipated costs on GM in order to force a merger."

GM claims in the suit that it was directly damaged "as a result of the pattern of racketeering."

Filing the lawsuit against FCA wasn’t “a decision that we made lightly,” GM CEO Mary Barra said at the Barclays 2019 Global Automotive Conference Thursday. “It was something we very, very carefully considered.”

There wasn’t a “level playing field” throughout labor contract negotiations, she said. “We had to take action.”

Craig Glidden, GM's general counsel, said Wednesday: "We are preparing for trial. We are preparing to take this case to verdict. That is our path."

FCA said it was astonished by the lawsuit and the timing of the filing, which occurs as FCA attempts to finalize a new contract with the union and merge with the PSA Group.

Here are other findings in GM's lawsuit:

Starting in July 2009, to pay back FCA's bribes to certain UAW leaders, the UAW gave Chrysler competitive labor advantages, according to the complaint.

"FCA ensured that while these special advantages were conferred on FCA, the same or similar advantages were not provided to at least GM despite it seeking similar programs and concessions," which resulted in higher labor costs for GM, the complaint said.

For example, the UAW allowed FCA to hire a more flexible work force, which included more temporary and tier-two workers than GM was allowed, the complaint and Glidden said.

Under the UAW's 2007 labor contract with both GM and FCA, the automakers had a 25 percent cap on tier-two workers, who are paid less than tier-one employees. The cap was lifted in 2009, but under the 2011 contract, GM agreed to reinstate it in 2015.

FCA and the UAW, however, reached a "side letter" agreement that the cap would not be reinstated in 2015, according to the complaint.

"FCA hired tier-two workers with abandon, possessing the incredibly valuable foreknowledge that it would not be penalized by any reinstatement of the cap. 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," the complaint said.

The UAW also failed to hold FCA to the same limited number of temporary workers as GM. Temporary workers are paid substantially less than tier-two workers and automakers have more freedom to adjust their schedules.

The UAW and FCA also reached "side letter" agreements that significantly decreased health care costs, the suit says.

The plan would have saved GM up to $20 million per year, the complaint said. GM requested FCA's less expensive plan during the bargaining process, but the UAW refused, according to the complaint.

"Taken together, FCA Group's corruption, through operation of the FCA-Control and [National Training Center] Enterprises, helped buy a wage advantage to take FCA from worst to first among the Detroit-based automakers," the complaint said.

In 2006, Chrysler had the highest labor costs at $75.86 per hour on average, compared with GM's average of $70.51 at the time.

Through its schemes, FCA slashed its hourly labor costs to $47 on average by 2015, compared with $55 per hour at GM.

It was no secret that Marchionne wanted to merge with GM. He was an outspoken advocate of industry consolidation, and his shadow still looms as FCA aggressively pursues a merger under Marchionne’s successor, Mike Manley.

Marchionne’s merger dream dated back to the mid-2000s. GM was the prize even then.

After failing to secure a GM merger in 2005, the suit says Marchionne saw another opportunity after Fiat acquired Chrysler in 2009. Marchionne said: “[A]fter fixing Chrysler, let’s . . . take General Motors and merge them together. Once and for all, let’s straighten out the car industry, creating an American giant that also allows a long-term future for Fiat.”

In October 2012, when Fiat owned about 59 percent of Chrysler and the UAW Trust owned the rest, the suit says “Marchionne wrote to GM’s CEO on behalf of FCA Group proposing a 'comprehensive' combination between Fiat, Chrysler, and GM. GM rebuffed this attempt at a combination. But Marchionne remained resolute in his quest to force an FCA Group-GM combination.”

In 2015, Marchionne and his team aimed to “effectively take over GM through a merger,” the complaint said.

Marchionne aimed to be the CEO of the combined entities. Because of the merger prospect, Marchionne authorized the bribery of UAW leaders, who could block the merger under the automakers’ labor contracts, the complaint said.

GM rejected the merger offer in April, two weeks before Marchionne published a powerpoint called “Confessions of a Capital Junkie: An insider perspective on the cure for the industry’s value-destroying addiction to capital.”

Marchionne said an FCA-GM merger would save nearly $5 billion without laying off employees. 

In June, Alphons Iacobelli abruptly stepped down from his post as vice president of employee relations at FCA. Iacobelli would have played a crucial role in FCA-UAW 2015 labor negotiations, and Marchionne assumed his place at the bargaining table.

UAW President Dennis Williams and Vice President Cindy Estrada encouraged the merger proposition to GM later that month, according to the complaint.

Marchionne told Williams that his goal was to use the UAW and the labor contract to persuade GM on the merger, the complaint said.

He told Williams: “[w]hatever happens in terms of consolidation, it would never be done without the consent and support of the UAW. It’s that simple,” according to the complaint.

GM expected a 2015 labor contract that would cost about a billion more than the 2011 agreement. GM, the largest and best performing of the Detroit 3 at the time, believed that it would be the target for contract talks, which means it would negotiate with the UAW first while Ford and FCA would follow a similar pattern.

The UAW instead announced that FCA would be the target. After selecting FCA, Williams told a GM executive that he would explain why he selected FCA when he retired, but even after he retired, he never explained, the complaint said. 

The final 2015 contract cost GM $1.9 billion, about $1 billion more than GM had expected based on talks with the UAW before it selected FCA as the target.

“Although GM was able to successfully resist the FCA-UAW leadership takeover scheme, substantial damage from the racketeering scheme had been inflicted: direct injuries to GM that continue to reverberate and compound to this day, including higher costs and lost investment initiatives,” the complaint said.