GM allegations threaten Marchionne legacy, complicate Fiat’s PSA merger plan

The federal racketeering lawsuit filed by General Motors on Wednesday, accusing Fiat Chrysler Automobiles of playing a role in a years-long union bribery scandal, threatens the legacy of an iconic auto industry leader — and a mega-merger.

Fiat Chrysler Chairman John Elkann forcefully rejected allegations leveled by GM that implicate the Italian-American automaker’s late chief executive, Sergio Marchionne, in a corruption scheme that’s already landed car executives and labor leaders in jail.

“We are not worried,” Elkann said Thursday at an investor event in Turin, Italy, for Exor, the holding company of Fiat’s founding Agnelli family. “I’m disappointed over the false accusations against Marchionne, who can’t defend himself.” Marchionne, 66, died last year.

GM CEO Mary Barra, who spoke Thursday at an investor event in New York, said that the suit was “not a decision that we made lightly” and that it is designed to help level the playing field. “When we saw facts indicated that that was not the case, we felt it was in the best interest of all our stakeholders in the company” to proceed with the legal action.

The charges, if borne out, would tarnish the legacy of an executive credited with saving Fiat and then Chrysler during a 14-year run — and with it the Agnelli family’s fortunes. There’s also the prospect that the allegations could complicate Fiat Chrysler’s plan to merge with Peugeot owner PSA, leapfrogging GM to become the world’s fourth-largest automaker by volume.

The lawsuit “comes at a very delicate time for FCA,” which also is negotiating a new labor contract, Marco Opipari, an analyst with Fidentiis Equities, wrote in a note. Fiat said Thursday that talks with Peugeot are progressing well, and Elkann added that he expects a binding memorandum of understanding by year-end. Paris-based PSA declined to comment.

GM alleges Fiat Chrysler inflicted billions of dollars in damages by bribing United Auto Workers’ brass for competitive advantages that the union denied to GM. The illicit payments benefited Fiat Chrysler starting in 2009, when the two companies were emerging from government-backed bankruptcies, through 2015, when Marchionne conspired with the UAW to attempt a GM takeover, according to the suit.

The U.S. automaker may seek at least $6 billion in damages, and given it’s filed the suit under the federal RICO act, the amount “could yield a figure as high as $15 billion,” estimates Ryan Brinkman, an analyst with JPMorgan Chase.

Fiat Chrysler on Wednesday said it assumed GM was trying to undermine active negotiations to clinch the PSA merger and the UAW contract. While GM isn’t suing the UAW, it’s risking relations with the union by airing more allegations of wrongdoing on top of what federal prosecutors have already made public. In a statement, the UAW denied that past contracts were tainted, saying there were “multiple layers of checks and balances” to ensure their integrity.

The suit is remarkable in terms of precedence and irony. Big automakers are accustomed to dealing with major litigation brought by regulators and consumers, but not by one another. And if arguments both sides are making against each other are true — that Marchionne was using the UAW to bully GM’s Barra, and that she’s now trying to undercut Fiat Chrysler’s combination with PSA — the chess moves will go down as among the most dramatic by Detroit executives in decades.