Economy, Business And Finance

GM sues Fiat Chrysler, citing corrupt bargaining

GM charges it was hurt by bargaining with UAW

(CNN) - General Motors has filed a federal lawsuit against Fiat Chrysler, arguing it was hurt by the rival automaker's corrupt labor relations with the United Auto Workers union.

The federal racketeering suit filed Wednesday cites wrongdoing by former Fiat Chrysler executives who have pleaded guilty in an ongoing federal probe into the UAW.

"This lawsuit is intended to hold Fiat Chrysler accountable for the harm its actions have caused our company and to ensure a level playing field going forward," said Craig Glidden, GM general counsel.

The suit cites criminal charges in the union corruption case, arguing that Fiat Chrysler bribed UAW officials over the course of the last decade with "millions of dollars in prohibited payments and things of value" in order to get a better labor deal from the union than GM was able to secure.

"While a full accounting of the damage inflicted on GM is unknowable at this time...GM estimates that it has incurred massive monetary damage in the form of higher costs that it seeks in relief," said the suit. It said the union deal of 2015 at Fiat Chrysler and GM cost GM "billions."

The suit comes as the UAW and Fiat Chrysler are engaged in contract negotiations and as Fiat Chrysler is trying to close a proposed merger with PSA Group, the French automaker. That deal that would create a combined automaker larger than GM.

"We are astonished by this filing, both its content and its timing," said a statement from Fiat Chrysler. "We can only assume this was intended to disrupt our proposed merger with PSA as well as our ongoing negotiations with the UAW. We intend to vigorously defend against this meritless lawsuit and pursue all legal remedies in response to it."

The suit also comes a month after GM reached a deal with the union on a new four-year contract. But that came only after a bruising six-week strike which GM estimates cost it $2.9 billion in lost profits.

But the costs that GM cite in its suit have nothing to do with that strike.

Instead, GM alleges the labor contracts Fiat Chrysler negotiated allowed the company to pay less for labor over the last eight years. Specifically Fiat Chrysler was able to make much greater use of workers who receive lower pay and benefits because they were hired after 2007. It also made greater use of temporary workers, who cost the company even less.

Fiat Chrysler said that 59% of its current work force is made up of those workers who are paid at the lower post-2007 pay scale, while an additional 13% who are temporary workers. GM said that only 35% of its work force is paid at the lower post-2007 scale, and only 7 to 10% of its hourly US staff are temporary workers.

According to an estimate from the Center for Automotive Research, the difference in mix of employee pay gave Fiat Chrysler a cost advantage of $8 to $10 an hour compared to GM.

Former Fiat Chrysler Vice President for Employee Relations Alphons Iacobelli is among those who have pleaded guilty to bribing UAW officials and is now in federal prison. Two other former Fiat Chrysler executives, a financial analyst and a director of human relations, also pleaded guilty in the scandal and received prison time.

But the suit claims that the decision to bribe the UAW in order to get a better labor deal went much higher than Iacobelli. It charges that it was done with the approval of Sergio Marchionne, the late CEO of Fiat Chrysler who brought the two companies together starting in 2009. The suit says his efforts to get a cost advantage for Fiat Chrysler goes all the way back to the early days of the merger.

A number of union officials who dealt with Fiat Chrysler also are in prison, including former UAW Vice President Norwood Jewell, who once headed negotiations with Fiat Chrysler for the union. He pleaded guilty in April to accepting, arranging and approving illegal payments from Fiat Chrysler executives to high-level union officials.

The investigation is continuing. UAW President Gary Jones recently took a leave from his job in the face of allegations that he was one of the union officials benefiting from the scandal, a charge he has denied.

The UAW, which represents workers at Fiat Chrysler, GM and Ford, issued a statement saying "we are confident that the terms of those contracts were not affected by Iacobelli's misconduct, nor that of any UAW officials involved in the misuse of [union] funds at Fiat Chrysler."

"That said, the fact that these issues can cause doubt about the contracts is regrettable," the union said. "The UAW leadership is absolutely committed to making whatever changes are necessary to ensure on our end the misconduct that has been uncovered will never happen again."

"The UAW leadership is absolutely committed to making whatever changes are necessary to ensure on our end the misconduct that has been uncovered will never happen again."


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