Howes: Corruption charges mar Marchionne's FCA legacy
Detroit — Sergio Marchionne's legacy at Fiat Chrysler Automobiles NV is moving from weighty to crushing.
The sweeping allegations contained in General Motors Co.'s racketeering lawsuit against the Italian American automaker, filed Wednesday, depict a manipulative mastermind who led the remains of the old Chrysler Group from bankruptcy. Within weeks, the lawsuit and court records show, the new company moved to corrupt the bargaining process with cash, gifts and favorable contracts essentially underwritten by American taxpayers.
Marchionne's accused of enlisting former United Auto Workers President Dennis Williams, his longtime friend, in one of several abortive attempts to engineer a merger with Detroit's largest automaker — a charge Marchionne privately acknowledged before his death in July 2018.
His gambit failed, even as the automaker he rescued from bankruptcy keeps delivering strong results, especially in North America. Left behind is a trail of union officials and former FCA executives caught up in the widening scandal that so far has produced 10 convictions, charges against 13 and implicated Marchionne, Williams and UAW President Gary Jones in the years-long federal investigation into union corruption.
FCA under Marchionne is accused of being a "clear sponsor of pervasive wrongdoing, paying millions of dollars in bribes to obtain benefits, concessions and advantages" in labor agreements over the past decade, weakening GM's competitive position in an effort to engineer a merger of the two companies.
The confluence of the corruption scandal and GM's historic lawsuit against a crosstown rival is no accident. As the federal investigation produced more evidence of financial wrongdoing — and more convictions — GM lawyers working with their outside counsel, Kirkland & Ellis LLP, began to piece together a narrative with troubling implications, according to a source familiar with the situation: Marchionne conspired with union officials to weaken GM's cost position with the goal of engineering a merger GM repeatedly rebuffed.
"The scheme was integrated with the attempt to force a merger with General Motors in 2015," GM General Counsel Craig Glidden said Wednesday. He added that Marchionne's bid to enlist the UAW's support — and, by extension, GM's largest shareholder, the UAW's retiree health care trust — "was underfoot" at the same time, roughly the second year of Williams' UAW presidency.
GM's central contention is stunning and obvious all at the same time. Years of investigations by federal agents, and reporting by The Detroit News, have produced a complex narrative of corruption that underpins Marchionne's increasingly urgent search for a partner, preferably GM.
Couldn't happen, not in this town or its hometown industry, without the support of the UAW and whoever would be president. Ron Gettelfinger, who shepherded the union through the harrowing and humiliating bankruptcies of GM and Chrysler was, by almost universal agreement, incorruptible. He didn't drink or smoke; didn't tolerate improper fraternizing with suppliers and vendors; and, as former head of the union's Ford Department, possessed a deep understanding of the national contract.
He retired in 2010, less than a year after Marchionne gained control of Chrysler. His replacement: Bob King, a hard-left ideologue often more interested in attending meetings of the international labor movement in a posh Geneva hotel than managing the UAW's affairs or tending to his relationship with Marchionne.
The Boss, as Marchionne was known among his lieutenants, derided King as something of a Boy Scout, not the kind of union leader he could do business with. Few things exemplified his antipathy more than a fiery letter Marchionne wrote on his MacBook amid 2011 UAW-FCA national contracts:
"You and I met last weekend and agreed that we had to get this new contract agreed and signed today," Marchionne wrote in the letter, a copy of which was obtained at the time by The News from a source close to the negotiations. "I flew back from the Frankfurt Motor Show late last night to be here today to finalize the dialogue that has been started by our teams but that required your presence and mine to conclude. You, unfortunately, could not be here, I am told, due to competing engagements."
A year later, according to GM's complaint, Marchionne made his first overture to GM. He proposed a merger that would resemble subsequent offers: combine the operations of the two automakers, rationalize engineering resources, simplify the range of capital-intensive transmission and engine portfolios, and make way for Marchionne to run it all.
GM wouldn't bite. Not in 2012, when then-CEO Dan Akerson, Vice Chairman Steve Girsky and President Dan Ammann — each veteran dealmakers — evaluated possible combinations. And not in early 2015, when CEO Mary Barra's spied a note from Marchionne in her email inbox.
It was an unorthodox, almost casual, effort for such a deadly serious proposition. Would she and GM's directors reconsider, essentially forcing senior management and several directors to conduct a due diligence of the proposal with the help of two investment banking firms and one of the automaker's outside law firms.
"No one understood it," recalls a source who participated in the GM process.
But Marchionne did. A month later, he stunned industry analysts at the company's capital markets day with his "Confessions of a Capital Junkie," a reasoned manifesto detailing his case for consolidation in a global industry that he said incinerated investor capital on vanity projects that seldom benefit paying customers.
Undeterred, and with his friend Williams now leading the UAW, Marchionne made no secret that he still coveted GM and moved to execute what FCA code-named "Operation Cylinder." And the UAW would help him gain control, he figured, if he could persuade the UAW Retiree Medical Benefits Trust to vote its then-8.7% stake in GM in favor of a merger with his FCA.
"Whatever happens in terms of consolidation, it would never be done without the consent and support of the UAW," Marchionne said at the opening of the 2015 UAW-FCA contract talks. "It's that simple."
No, it wasn't. Under a 2009 post-bankruptcy agreement between GM and the U.S. Treasury, the union's shares must be voted proportionately with the majority of shareholders — effectively making it difficult, if not impossible, for the union to become a party to anything like a hostile takeover.
Behind the scenes, the arrangement was beginning to unravel. On June 9, 2015, Barra confirmed publicly that Marchionne had sent her an email proposing a merger, and that GM directors had offered "strong support" to rebuff the offer and go it alone.
The same day, FCA fired Alphons Iacobelli, its top labor negotiator, amid UAW-FCA national contract talks. The reason for the firing of Iacobelli, now serving a sentence of 5 1/2 years in federal prison, was unclear at the time — until he was charged for financial wrongdoing that included misusing corporate funds earmarked for the UAW-FCA joint-training center.
And things began to unravel. Three FCA executives convicted. Seven UAW officials, including a vice president, convicted, with another vice president charged. Williams and Jones implicated in wrongdoing, forcing Jones Wednesday to resign amid a move by the union's governing International Executive Board to remove him.
"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," GM wrote in its complaint. "Failing to consummate Operation Cylinder was a regret Marchionne took to the grave."
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.