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GM Lawsuit Means the Crisis Has Arrived for FCA

Bill Koenig
By Bill Koenig Senior Editor, SME Media


General Motors Co., by filing a racketeering lawsuit against Fiat Chrysler Automobiles, has engulfed FCA in a crisis.

FCA US LLC already faced the prospect of tough negotiations with the United Auto Workers union. Fiat Chrysler also wants to merge with PSA Group, parent company of Peugeot.

GM raised the stakes with its Nov. 20 lawsuit. FCA is accused of a “multi-year pattern of corruption.” That included manipulating bargaining with the UAW in 2009, 2011 and 2015, GM said in a statement.

In the lawsuit itself (posted online by Automotive News), GM accused FCA’s late CEO, Sergio Marchionne, of using “the collective bargaining process to harm GM by becoming the lead in negotiations and attempting to force a merger of the companies.”

The legal attack comes at a tricky time for FCA. GM and Ford Motor Co. have reached new four-year labor agreements with the UAW. GM’s new accord didn’t come until after a 40-day strike. Regardless. FCA will be under union pressure to match the basic financial terms of the GM and Ford contracts.

What’s more, the union is dealing with a federal investigation into misuse of UAW funds and is currently being led by an interim president. That adds a level of complexity to the proceedings.

Urge to Merge

Then, there’s FCA’s urge to merge.

Marchionne, who died in 2018, unsuccessfully sought to combine FCA with another automaker. Detroit-based GM rebuffed Marchionne’s approaches. Marchionne’s successors have continued to pursue the late executive’s dream.

FCA thought it had a merger partner with France’s Renault. But that unraveled only days later. FCA last month tried again, this time saying it wants to go to the altar with Paris-based PSA.

The GM lawsuit spurred FCA to issue a short, but terse, statement.

“We are astonished by this filing, both its content and its timing,” FCA said. “We can only assume this was intended to disrupt our proposed merger with PSA as well as our ongoing negotiations with the UAW.” The company called the GM lawsuit “meritless.”

The union also issued a statement. It’s not a defendant in the GM lawsuit. Still it said its previous contracts with FCA “were negotiated with the involvement of both local and international representatives and the process had multiple layers of checks and balances to ensure their integrity.”

Crisis is not too strong a word to describe FCA’s situation.

Major mergers, such as the proposed PSA-FCA transaction, are complex to pull off even in the best of circumstances. In this case, regulators in multiple countries will be examining the deal. If the merger goes through, management will face challenges in integrating the two automakers. Likewise, labor negotiations are never easy affairs.

On top of all that, GM’s lawsuit will require major attention from FCA management as the case proceeds in court. It’s not everyday that a major competitor accuses you of running a corrupt enterprise.

‘Pattern of Racketeering’

FCA “and its executives have engaged in a classic pattern of racketeering for the better part of a decade,” GM said in its lawsuit. “GM seeks to recover its damages from FCA Group and its corrupt executives for the benefit of GM and its employees.”

When Marchionne died last year, it was major news in the auto industry. FCA was Marchionne and vice versa. An era had passed.

GM’s lawsuit is bringing that era back to life – and not in a good way.

Marchionne “sat at the center of multiple fraudulent schemes,” GM said in the lawsuit. Of course, lawsuits only present one side of a case. But FCA now must defend itself while juggling a lot of major business.

A crisis can take many forms. For FCA, it’s taking the form of a lawsuit, one that is going to get a lot of attention.

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