General Motors Co. (NYSE: GM) filed a federal racketeering lawsuit yesterday against FCA (FCA US LLC and Fiat Chrysler Automobiles NV) and former FCA executives who have previously pled guilty in an ongoing federal corruption probe. The lawsuit alleges that a multi-year pattern of corruption at FCA undermined the integrity of the collective bargaining process, causing GM substantial damages. The UAW and its officials are not Defendants, however. At this point there are no credible estimates on potential requested damages but AutoInformed estimates they will be in the billions of dollars.
The 95-page complaint filed with the United States Court Eastern District of Michigan is sweeping, complex and potentially far-reaching for both companies, the UAW and organized labor, as well as the ongoing consolidation or reordering of the automobile business. It plays against the financial crisis that was the backdrop of the taxpayer bailouts of bankrupt GM and Chrysler that saw the last major regrouping of the Detroit Three – one that is by no means conclusive. (Troubled Asset Relief Program – Total Cost $32B)
Acting UAW President Rory Gamble, who is Director of the UAW Ford Department was made acting by the UAW International Executive Board recently to address the egregious misconduct1 that was revealed by FBI criminal investigations of Gary Jones, in the fraudulent diversion of funds from FCA Fiat that were supposed to support UAW worker training. The change wasn’t announced until the UAW concluded this year’s contract negotiations with Ford Motor. (UAW-Ford Agreement Closes Engine Plant, Protects 8500 Jobs)
Jones had refused to stand down as UAW president during the contract talks as criminal investigations ensue. A two-year probe has already led to the convictions of five people affiliated with the UAW and three Fiat Chrysler executives. Michael Grimes, a retired senior official with the union’s GM division, charged with wire fraud and money laundering for allegedly receiving $2 million in kickbacks from UAW vendors has pled guilty to stealing from union members over a period of nearly 12 years, 2006 until July 1, 2018. Sentencing is set for 14 January 2020 in Detroit. He faces four to 20 years in prison.
Central to GM’s legal action are admissions of wrongdoing made by former FCA executives that have thus far emerged from the continuing criminal investigation by the U.S. Attorney’s Office in the Eastern District of Michigan.
One such person, Sergio Marchionne, the deceased CEO of FCA, will not be able to comment. An intense, yet approachable CEO, smitten with black sweaters and Apple products, Marchionne was capable of referring wryly to business theories – some of them his own about, say, the collective madness of the industry over autonomous and electric cars during auto show executive braggadocio, with references to linguistic philosophy, current politics and history during a single press conference. He was also obsessed with the capital consumption and paltry returns of auto companies, the disservice this did to shareholders, and the need to merge companies in order to survive. (Gravely Ill Sergio Marchionne out at Fiat Chrysler Automobiles. Trucker Mike Manley now CEO, Sergio Marchionne Dead at 66)
The other shareholder corpse in this viewing are GM’s shareholders who will suffer the results of the recently settled strike by the UAW. GM reported disastrous Q3 2019 EPS-diluted of $1.60 and EPS-diluted-adjusted of $1.72, reduced by –$0.52 from the UAW strike impact, and -$0.15 from Lyft and PSA revaluations on income of $2.3 billion, and revenue of $35.5 billion. GM North America EBIT-adjusted was $3.0 billion. The net strike impact to GMNA was -$1.0 billion. This had $0.3 billion of “favorable timing items” and North America EBIT-adj. margin of 10.8% from full-size trucks and record crossover sales. GM’s breakeven point now requires an industry volume of 10-11 million units. GM said it would not be able to make up lost production and revenue losses this year. About two weeks of vehicle production was lost. GM predicts the 2019 calendar-year impact of the strike to be approximately -$2.00 per diluted-share. Could it be that GM – simply – wants to cover the cost of the strike? (General Motors Q3 Earnings Hit Hard – $1.3B – by UAW Strike)
“This lawsuit is intended to hold FCA accountable for the harm its actions have caused our company and to ensure a level playing field going forward,” claimed Craig Glidden, GM Executive Vice President and General Counsel.
In GM’s view FCA was the sponsor of “pervasive wrongdoing, paying millions of dollars in bribes to obtain benefits, concessions, and advantages in the negotiation, implementation, and administration of labor agreements over time.”
FCA corrupted the implementation of the 2009 collective bargaining agreement with the UAW. It also corrupted the negotiation, implementation, and administration of the 2011 and 2015 agreements. This resulted in unfair labor costs and operational advantages, causing harm to GM.
“With this lawsuit, GM is seeking to reinforce that bargaining must be free from fraud and corruption. All damages recovered will be invested in the U.S. to benefit GM’s employees and grow jobs,” according to the filing.
GM alleges that Fiat Chrysler Automobiles managed to win the support of the U.S. government in obtaining operational control, for no cash, over Chrysler. “Shortly after this government approved acquisition, FCA Group betrayed our government’s and the U.S. auto industry’s trust and embarked on a systemic and near decade-long conspiracy to bribe senior union officials to corrupt the collective bargaining process and labor relations,” GM said.
In perhaps the most provocative part of the filing, GM says, in 2015, “with cooperation of UAW leadership purchased through bribes, 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. For years, Marchionne had made clear to GM his desire to merge companies, voluntarily or through force. In the spring of 2015, Marchionne formally solicited GM for a merger and was rejected. In the ensuing months, with the purchased support of certain former UAW officials including then President Dennis Williams, Marchionne proceeded to orchestrate a negotiation of the 2015 CBA designed, through the power of pattern bargaining, to cost GM billions.”
Fiat Chrysler Automobiles says that it will defend itself “vigorously” against the lawsuit filed yesterday by General Motors. It also says “we are astonished by this filing, both its content and its timing. We can only assume this was intended to disrupt our proposed merger with PSA as well as our ongoing negotiations with the UAW…
“FCA believes General Motors’ claims are nothing more than a meritless attempt to divert attention from that company’s own challenges,” it said in a statement. “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. 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. FCA will deal with this extraordinary attempt at distraction through the appropriate channels and will stay focused on continuing to deliver record results while realizing an exciting vision for the future of the industry. FCA is confident that it will prevail in defending itself against these claims in court and will also pursue all available remedies in response to this groundless lawsuit.”
How this all plays out remains to be seen and could take years.
Footnote 1 – Message to UAW Members from Gary Jones on November 15:
“I would first like to thank you for what you have done for this union. We are only as strong as our members, and I am so humbled to represent you. We have a big task ahead of us, but I am confident that we will succeed.
“In my first message, I said that I would communicate with you and keep you updated on major initiatives. The International Executive Board entrusted me to take this union forward and address the misconduct that has come to light, and I take that charge very seriously. I know you do, too. Our members are the backbone of this institution, and I want you to know that I value each and every one of you and I need your help to take this union forward.
“In my first week as Acting President, I said that I would move swiftly to enact reforms that would strengthen this union and our resolve to move forward with a commitment to ethical reforms, transparency, and accountability. And with the support of the International Executive Board, I’ve done just that. So, let me outline our first reforms and actions on behalf of this union, our members and our staff.
“I do this on behalf of all of our members and I say this here: I need your help and support. And I welcome your feedback.”
UAW initial reforms:
- Establishment of a UAW Ethics Officer – The establishment of an Ethics Officer who will not be an employee of the International Union, but rather an external position to investigate allegations, complaints or matters referred to them by the Ethics Ombudsman or IEB. To that end, we are beginning a national search for an Ethics Officer immediately.
- Establishment of an Ethics Ombudsman – The establishment of an Ethics Ombudsman to receive, review and respond to ethics complaints and allegations.
- Establishment of an Ethics Hotline – The UAW will set up an Ethics Hotline to encourage those who may have concerns about or want to bring attention to potential ethics violations. The hotline will provide members and employees the ability to anonymously and confidentially submit allegations or complaints about potential violations of the UAW’s Ethical Code and other relevant policies.
- Policy for Recovery of Misuse of Funds – The introduction of a new policy that will enhance enforcement against those who have been found guilty of misusing funds and our commitment to seek recovery of all misused or misappropriated funds.
- Accounting Policy – The implementation of stringent monetary controls that increase oversight by the UAW Accounting Department over the finances of our union.
- Charitable Contributions – The banning of all charitable contributions from UAW joint program centers, vendors, or employers to any charities run or controlled by UAW officials.
- Joint Programs – The enactment of accountability measures to the Joint Programs, including that purchases of promotional items using joint program funds have been permanently banned and all expenditures will be controlled, monitored, and regularly audited by independent public accounting firms.
- Cabin Four at Black Lake: “We intend to sell Cabin Four at Black Lake. Cabin Four and its related property at the UAW’s Walter and May Reuther Family Education Center will be put up for sale.”
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