A racketeering lawsuit against Fiat Chrysler by General Motors last week and the timing is not good at all for Fiat.
Fiat Chrysler is currently engaged in two very critical negotiations – one with the labour union United Auto Workers about a new contract for the workers and the other is merger negotiations with the French car maker PSA Group.
It is important that both the negotiations go well for Fiat Chrysler. However the negotiations could get complicated by the GM suit.
Analysts say that success of the merger with PSA could be crucial for the long term sustainability of Fiat Chrysler. Analysts also said that in order to develop the next generation of electric and self-driving cars, the scale and efficiencies needed for that will be availed by Fiat Chrysler form the merger. However given the history of failed merger attempts by Fiat Chrysler with other auto companies, analysts are also somewhat skeptical of the current merger attempts – negotiations of the terms for which are still ongoing.
Analysts also said that the law suit by General Motors will likely impact the ongoing labor talks even though they said that the merger talks with PSA might not get significantly influenced by the law suit.
However analysts also say that if Fiat Chrysler is unable to strike an affordable contract with the labour union and if there is a strike at the company as a consequence, it would have a serious impact on the merger talks.
During the 2011 and 2015 labor negotiations, GM stood to lose billions of dollars because Fiat Chrysler got an undue cost advantage as the company executives had bribed union officials to provide the advantage, alleged the law suit citing criminal charges in an ongoing probe into the UAW. Analysts say that the charges of racketeering brought in by an automaker against a rival are unprecedented. ,
The law suit was described as “meritless” by Fiat Chrysler and said that it was an effort to cause disruption and derail the ongoing negotiations of the company with the union and PSA.
“We are astonished by this filing, both its content and its timing. We can only assume this was intended to disrupt our proposed merger with PSA as well as our ongoing negotiations with the UAW,” said Fiat Chrysler in a statement.
However analysts also say that PSA will get interested in Fiat Chrysler because of Fiat’s record third quarter operating earnings. One of the driving factors for this good performance is the cheaper labour costs of Fiat Chrysler in comparison to those incurred by GM or Ford.
“I don’t know if the labor talks can get more difficult than they already were, especially with a rich pattern set at GM and Ford (F),” said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research. “The Fiat Chrysler workers are going to have a difficult time accepting a contract that is anything less.”
(Adapted from CNN.com)