The judge overseeing the big GM-FCA racketeering case throws it all out. China wants your new car smell to be healthy. GM shakes up its management. Carlos Ghosn apparently paid a hefty sum for his wild extraction from Japan. All that and more in The Morning Shift for July 9, 2020.
Back in November, GM sued Fiat Chrysler after the Auburn Hills-based company was found to have been involved in an egregious corruption scandal with the United Auto Workers union. This bribery scandal, GM argued in its suit, allowed Fiat Chrysler to gain a competitive advantage over The General, whose labor costs are set, in many ways, by a union contract that was, in part, negotiated between the UAW and FCA.
On Wednesday, Judge Paul Borman threw out the case, with Automotive News writing:
U.S. District Judge Paul Borman on Wednesday dismissed General Motors’ wide-ranging racketeering lawsuit against Fiat-Chrysler Automobiles which accuses FCA of coordinating a years-long bribery scheme with UAW leaders to gain an unfair labor-cost advantage.
For a little more background on the origins of the lawsuit, here’s what the Detroit Free Press said back in November:
The lawsuit alleges that during contract negotiations in 2011 and 2015, FCA targeted GM in a multiyear pattern of corruption that undermined the integrity of collective bargaining with the UAW. It alleges that FCA interfered with implementation of contracts as soon as 2009.
GM said the corruption cost it “substantial” damages. Specifically, FCA was able to achieve favorable labor costs and operate “differently than their competitors that helped” lower FCA’s costs, said Glidden.
More recently, we’ve been hearing a lot about the judge presiding over the case: Judge Paul Borman. He ordered GM CEO Mary Barra and FCA CEO Mike Manley to meet, in good faith, and just hash this all out. He also gave this incredibly entertaining order, which really reads like a rant against a lawsuit that, given current times, may seem silly in some ways:
The world has changed dramatically since this case was filed on November 20, 2019. This city, this state, and this country need healing. The COVID-19 pandemic, and its impact on the health of this country, requires our attention here and now!
Just as important, is our response to the tragic death of George Floyd, that has brought to the forefront the long-standing issues of racial discrimination, and social justice, that require our attention and solution, here and now!
If this case goes forward, there will be years of contentious litigation; motion hearings, multiple-day depositions of large numbers of executives and former executives, at GM and FCA, as well as United Auto Workers (UAW) officials, other Defendants, many third parties, and a plethora of RICO, labor law, and damages experts.
These “legalities” will not only divert and consume the attention of key GM and FCA executives from their “day jobs”—issues of vehicle production, sales, worker safety, roll-outs, supplier issues, etc.—but also prevent them from fully providing their vision and leadership on this country’s most pressing social justice and health issues.
In 2008, and going forward, the Federal Government focused on rescuing GM and Chrysler, by providing billions of dollars in aid. That saved GM and Chrysler, now FCA, and tens of thousands of UAW auto workers’ jobs. Today our country needs, and deserves, that these now-healthy great companies pay us back, by also focusing on rescuing this country and its citizens from the plagues of COVID-19, racism, and injustice, while building the best motor vehicles in the world.
While watching television news, I have seen CEOs Mary Barra of GM, and Michael Manley of FCA join together, time and again (often with Bill Ford) to provide some attention, leadership and skills to solving social and economic issues for the good of their companies, their workers, their communities, and our country.
So too, I have noticed some attorneys devoting their skills to provide equal justice for all citizens, in particular those less fortunate who require representation in our courts.
What a waste of time and resources, now and for the years to come in this mega litigation, if these automotive leaders and their large teams of lawyers, are required to focus significant time-consuming efforts to pursue this “nuclear option” lawsuit, if it goes forward.
GM was not thrilled with this order, and wanted it thrown out. The company also wanted a new judge assigned to the case, but that didn’t happen. What did happen is Borman dismissed the case. Fiat Chrysler was satisfied with this, though GM clearly was not, as this quote from Automotive News demonstrates:
“There is more than enough evidence from the guilty pleas of former FCA executives to conclude that the company engaged in racketeering, our complaint was timely and showed in detail how their multi-million dollar bribes caused direct harm to GM,” spokesman Jim Cain said in a statement. “The district court’s opinion is contrary to well-settled RICO case law and would let wrong-doers off the hook for the massive harm caused by their criminal conspiracy.”
Ultimately, though, the court said GM didn’t have enough evidence to prove that FCA sought to harm its competitor:
GM’s allegation does not prove a direct relationship between FCA’s conduct and GM’s injury, which is required under the Racketeer Influenced and Corrupt Organizations Act, Borman said.
Factors other than FCA’s goal to impose extensive labor costs on GM could also explain FCA’s motive to negotiate a contract that was expensive for the automaker but generous for Detroit 3 workers, Borman said. For example, he said, FCA’s UAW workforce had already rejected the first contract, which put pressure on FCA to negotiate a second proposal that would appeal to workers.
“New car smell” is a very distinct aroma that’s essentially a combination of various chemicals found in interior plastics and fabrics. Some of these chemicals may not be the most healthy for humans to breathe, which is presumably why China is looking into imposing an in-car air quality requirement. From Reuters:
China is considering mandatory in-car air quality regulations to protect the health of drivers, in a move that could jack up costs for automakers importing vehicles from markets without such rules, sources with knowledge of the matter told Reuters.
New in-car air quality rules in the world’s biggest auto market will likely pose a headache for auto interior parts suppliers too as they will need to tweak their products to meet new requirements, the sources added.
The story goes on to say that, per “three people familiar with the matter,” regulators would test formaldehyde and benzene levels, and that vehicles would be tested after their doors have been shut for multiple hours.
The article also mentions the potential for electromagnetic radiation testing, particularly on EVs.
GM is getting a bit of a shakeup near the top of its executive ladder, with Executive VP and President of North America Barry Engle leaving his job, apparently to try to become a CEO somewhere. The Detroit Free Press discusses it in a recent story
A source familiar with the move said, at age 56, Engle has a final chance to run a company and has started the search. Engle has been the CEO of many companies earlier in his career, including having been a car dealer.
The president of the Cadillac brand, Steve Carlisle will be taking over:
GM has tapped Cadillac boss Steve Carlisle, 58, to replace Engle effective Sept. 1. Carlisle has been president of Cadillac since April 2018.
“Steve will help us scale the considerable transformation progress we have been making, while at the same time preserving the sufficient autonomy necessary to maintain four distinct vehicle brands,” said GM Chairman and CEO Mary Barra in a statement.
Cadillac’s daily ops, the Detroit Free Press states, will be taken care of by Rory Harvey, who came on in 2008 as Cadillac’s Vice President of Sales, Service and marketing.
You may recall that former Nissan chairman Carlos Ghosn escaped Japan to Lebanon after being detained in the former country after being charged with financial crimes. The escape effort, if you haven’t read it yet, is wild, and involves a music case.
Now a new story from Reuters mentions a new court filing alleging that Ghosn wired over $850,000 to a company “managed by one of the two men who later helped him escape from Japan.”
Apparently, this revelation comes shortly after the two men involved in the escape effort petitioned for bail. From Reuters:
Tuesday’s filing in Massachusetts federal court shows wire transfers last October of $540,000 and $322,500 from a bank account in Paris to Promote Fox LLC, a company managed by Peter Taylor and a brother.
The filing does not say how much the Taylors were paid, but prosecutors said it reflects “additional evidence” that they have the resources to flee, and should remain detained as “flight risks.”
The Taylors’ lawyer, of course, says the two are not flight risks, and mentions coronavirus cases in the correctional facility where the two are being held. The lawyer also calls into question the validity of the arrest warrants and extradition requests.
We keep hearing from various automakers about how they foresee the future of the auto industry, particularly the near future, as manufacturing and sales increase following major coronavirus shutdowns.
We’ve heard about sales resurgences in other markets, especially in China, with companies like Nissan and VW describing what seems like a healthy recovery. VW and BMW seemed unsure about whether such a recovery would be replicated in other markets like Europe.
Now we’ve got Daimler chiming into the whole “Will other car markets follow China’s recovery?” discussion, and it seems the Stuttgart-based company is hopeful. From the Financial Times:
However, the Stuttgart-based luxury manufacturer had its best-ever second quarter in China, with sales of Mercedes vehicles in the country — Daimler’s largest and most profitable market — up by more than 21 per cent.
“We are cautiously optimistic that other markets will follow this development step by step,” said Mr Kallenius.
“Nearly all of our worldwide dealerships have opened again,” he added. “Already in June, global retail car deliveries were slightly above the prior-year level again.”
Of course, Daimler’s sales numbers haven’t been good, with Mercedes sales apparently dropping by 19 percent during the first half of 2020. Plus, the Financial Times mentions addition cost-cutting underway. (Indeed, Reuters’ story that we mentioned yesterday seemed a lot bleaker than the Financial Times one above).
But Chairman of the Board Ola Kallenius seems hopeful.
From the 2008 Guinness Book of World Records:
Longest Parades-Fiats: The Fiat 500 Club Ialia organized a parade of [Fiat 500] cars and their fans from Villanova d’Albenga to Garlenda, Ialy, on July 9, 2006.
Are you a fan?