General Motors declares corporate war on Fiat Chrysler

The racketeering lawsuit brought by General Motors against Fiat Chrysler Automobiles is a legal bombshell for the U.S. car industry.

GM’s broadside lays out in forensic detail how FCA allegedly conspired over many years to funnel payments to UAW officials, corrupt the collective bargaining process on wages and thus secure a competitive advantage. In essence, it’s trying to rewrite the American auto industry’s past decade of history, which saw both GM and Chrysler bounce back dramatically from Chapter 11 bankruptcy.

In GM’s telling, the merger of Italy’s Fiat with Michigan’s Chrysler and their subsequent renaissance under the leadership of Sergio Marchionne was built on corruption. It may have a hard time proving parts of its case, particularly its assertion that the goal of the alleged conspiracy was to weaken GM and force it into a merger with Fiat.

The Italian company says the lawsuit is groundless, implying that any bribe-paying would have been a case of a few bad apples. This is an awkward defense, though: Federal prosecutors have accused FCA managers of trying to keep union officials “fat, dumb and happy” and three of the company’s executives have pleaded guilty to various charges.

Regardless of whether GM succeeds in extracting billions of dollars compensation from its rival, the lawsuit seems calculated to punish Fiat and destabilize its recovery. Fiat’s proposed merger with France’s Peugeot SA, a prospective labour deal with the UAW and the reputation of the deceased Marchionne are in the balance. Relations between the two carmakers and with America’s trade unions will never be the same again.

GM’s lawsuit contains plenty of salacious claims, but this goes far beyond the accusations of fancy meals, trips and gifts to UAW officials to secure lower and more flexible labour costs. In GM’s allegations, the original sin goes all the way back to 2009 when the Italian company “managed to win the support of the U.S. government in obtaining operational control, for no cash, over an iconic U.S. auto company”.

And GM leaves little doubt about where the buck stops for the alleged orgy of trade union bribery that ensued: former Fiat boss Marchionne. This is shocking because for many investors Marchionne was a hero who created huge value. Doubtless this grated with GM, whose own remarkable post-crisis recovery allowed it to fend off FCA's merger overtures.

CASTING A CLOUD

There are other things that cast a cloud over the Marchionne era. Last year the U.S. Securities and Exchange Commission found that during his tenure FCA fraudulently misled investors about how many new vehicles it and its dealers sold each month. Furthermore, the U.S. brought criminal charges against FCA this year related to alleged diesel emissions cheating between 2011 and 2017. The automaker agreed to pay $800 million (all figures in USD) in January to settle diesel lawsuits brought by states, car owners and the U.S. Department of Justice, which labeled it a “bad actor.”

While Marchionne isn’t alive to defend himself, the mantle of savior of the auto industry has passed to Peugeot’s boss Carlos Tavares. He acquired GM’s Opel/Vauxhall European subsidiary in 2017 and turned it around in record time, an embarrassment for GM which achieved nothing but losses there. The GM lawsuit will be a big test for him, and may encourage him to rethink the terms of the Peugeot-Fiat merger, which clearly favor the Italian side.

GM’s move also puts the screws on the UAW to bargain particularly hard with FCA over a new labor deal. If the union fails to emerge with good terms from those talks, it will look beholden to a carmaker from whom former officials allegedly accepted bribes.

These scorched-earth tactics could yet backfire for GM. The technological and regulatory upheaval that’s upended the auto industry probably needs cooperation, not feuds. GM has already secured a new labor deal with the UAW, but re-airing the union’s dirty linen won’t help its own employee relations, which have been scarred by 40 days of strikes this year.

GM says the timing is coincidental but nothing about this lawsuit feels haphazard. It’s a precision-guided declaration of corporate war.