Author: Detroit Free Press Online

Feds on auto scandal: Fiat Chrysler sought to corrupt talks with UAW

Feds on auto scandal: Fiat Chrysler sought to corrupt talks with UAWCLOSE
Over a period of years, former Fiat Chrysler executive Al Iacobelli and former UAW Vice President General Holiefield helped to save Chrysler and then stole millions intended for worker training, authorities say.

Federal prosecutors say Fiat Chrysler Automobiles, through a key defendant in the wide-ranging training center scandal, “sought to corrupt and warp the labor-management relationship” with senior UAW officials.
The statement in a sentencing memorandum for Alphons Iacobelli, a former vice president of employee relations for FCA, is part of what appears to be a dramatic uptick in the rhetoric directed toward the automaker. The company, for its part, insisted in a response to the allegations that wrongdoing was limited to certain bad actors and did not affect contract bargaining.
Prosecutors, however, said the automaker wanted to influence labor contracts and that union officials failed in their duties to represent union members.
“FCA sought to obtain benefits, concessions and advantages in the negotiation and administration of collective bargaining agreements with the UAW in an effort to buy labor peace. High-level officials of the UAW sought to enrich themselves and live lavish lifestyles rather than zealously work on behalf of the best interests of tens of thousands of rank and file members of their union,” according to the 14-page document filed Monday.
The paperwork also says Fiat Chrysler provided more than $9 million in illegal chargebacks — money from FCA used to pay the salaries of UAW officials at the training center, a place that was supposed to provide for autoworker training — between June 2009 and July 2017. The government said Iacobelli and FCA viewed the chargebacks as a political gift to the UAW and that high-level UAW officials assigned union officials to the training center “with no intention that they would perform any real work at the NTC.”
The dollar figure suggests the government believes it was an even more pricey scheme than previously reported. Earlier stories had focused on allegations that $4.5 million had been misused, in part, on expensive clothing, jewelry and travel.
In its response to the allegations, the company called itself a victim in the case.
“FCA US firmly restates that it was a victim of illegal conduct by certain rogue individuals who formerly held leadership roles at the National Training Center (NTC), an independent legal entity. FCA US also confirms that the conduct of these individuals had no impact on the collective bargaining agreement,” according to a company statement issued Monday evening.
The company said the actions involved “a small number of bad actors, who, for personal gain, misappropriated training funds entrusted to their control and who, unfortunately, co-opted other individuals who reported to them to carry out or conceal their activity over a period of several years.”
The union has also insisted the case is limited to a few bad actors.
“The UAW has zero tolerance for corruption or wrongdoing, at any level of the organization. Now, our leadership team had no knowledge of the misconduct — which involved former union members and former auto executives — until it was brought to our attention by the government,” according to remarks last year by then-UAW President Dennis Williams.
The sentencing paperwork does, however, also focus on the specific role of Iacobelli, with the government pointing to his efforts to cooperate and suggesting a sentence of six years and four months rather than a possible eight-year sentence. Iacobelli is scheduled to be sentenced on Aug. 27.
“The court's sentence should reflect the seriousness of Iacobelli's crimes and the need to deter corporate executives, corporations, union officials and labor unions from similar conduct. At the same time, the sentence should account for Iacobelli's acceptance of responsibility and his sincere efforts at revealing vast labor-management corruption and assisting in efforts to end it,” according to the memorandum.
Prosecutors also said Iacobelli was able to avoid more than $800,000 in taxes on the “significant stream of income he directed to himself.”
Authorities previously said Iacobelli used $1 million in training center funds to buy a new pool, $35,000 pens and even a Ferrari.
Prosecutors noted that Iacobelli, for certain aspects of the negotiations and relationship with the UAW, reported directly to former FCA CEO Sergio Marchionne, who died in July.
Read more:
Fiat Chrysler-UAW scandal 'did not begin with Iacobelli,' his lawyers argue
Professor: Feds suggest UAW/Fiat Chrysler scandal was wider conspiracy
In his own sentencing memorandum, Iacobelli's attorney, David DuMouchel, argued that the corruption at the heart of the case — bribing of UAW officials with travel, jewelry, cash and more — preceded Iacobelli. DuMouchel requested a sentence of 37-46 months in prison.
Peter Henning, a Wayne State University law professor and former federal prosecutor, had noted previously that the government appeared to be more directly focusing its fire on the automaker.
He said that language in the plea agreement this year for former FCA director of employee relations Michael Brown indicates that the Justice Department sees a more widespread case.
“I think that the Justice Department is making the point that it wasn’t just lining their pockets, but that this went much deeper, that this affected the union contracts,” Henning told the Free Press in June.
Authorities said Iacobelli worked closely with the late General Holiefield, a former UAW vice president, on the scheme.
Holiefield's widow, Monica Morgan, was the first person to be sentenced in the scandal.
U.S. District Court Judge Paul Borman issued an order last week that will allow Morgan to report for prison on Oct. 1, rather than Aug. 29.
Morgan had requested the extra time “to allow her to finish putting her personal affairs in order,” according to the paperwork signed by the judge.
Last month, Morgan, a prominent metro Detroit photographer, filed paperwork to appeal her 18-month sentence on a tax charge, to which she pleaded guilty in February. That case is with the U.S. 6th Circuit Court of Appeals.
Authorities said Morgan hid $201,000 on her 2011 taxes, and Morgan, in plea documents, acknowledged that the money came from criminal activity.
Two other defendants in the case — Keith Mickens, a former labor leader, and ex-FCA analyst Jerome Durden — were expected to appear in court Friday for sentencing, but those proceedings have been rescheduled for Nov. 7.
Contact Eric D. Lawrence: elawrence@freepress.com. Follow him on Twitter: @_ericdlawrence. Staff writer Tresa Baldas contributed to this report.
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US carmakers must win in China, but it's going to get more difficult

US carmakers must win in China, but it's going to get more difficultThe fortunes of Detroit automakers increasingly lie some 7,000 miles to the east — in China.
China is already the world's largest car market, selling 29 million light vehicles a year. By 2025, China's new car sales will be double those of the United States, analysts said. To put that in perspective, about 17.2 million new light vehicles were sold last year in the U.S., according to Kelley Blue Book data.
And while new car sales are ballooning in China, they have leveled in the U.S.
This puts Detroit's car companies at a critical juncture. They must focus on growing their sales in China if they want to sustain total profits enough to succeed elsewhere in the world.
Yet Ford and Fiat Chrysler struggled in China in the second quarter, and it isn't getting any easier in the future for them and General Motors.
“It's going to get more and more difficult to compete in China,” said John Bonnell, senior adviser of ZoZo Go, an investment advisory firm specializing in China's electric and autonomous vehicle industries. “With the heavy competition, demand for more electric vehicles, trade wars … it's not an easy business there.”
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Detroit's reality checkThe Chinese car market is intensely competitive given the rising success of some Chinese car companies in the last few years. Then there is the looming threat of President Donald Trump's proposed 25 percent tariffs on imported cars and parts, which could inflate prices across the board.
But carmakers that succeed in China will gain a big advantage in other markets, said Bonnell.
“It will impact their performance here, eventually,” said Bonnell. “If you just have the U.S., you wouldn't have those million-dollar sales to spread to your tooling costs” and to cover other research and development expenses.
In fact, said Bonnell, looking at Volkswagen's success in China, “Its market share in Europe, since they have succeeded in China, has gone straight up.”
But the Chinese consumer has distinct needs and requires products tailored to them, said Jeremy Acevedo, manager of data strategy with Edmunds. Therefore, product becomes king if Detroit carmakers are to attract new buyers there. “They can't rely on shopper loyalty in the booming Chinese auto market,” said Acevedo.
As for Trump's proposed tariff hike and retaliation by the Chinese, Detroit Three exports to China are not a factor because they account for less than 5 percent of sales, Michael Dunne, CEO of ZoZo Go, wrote in a newsletter.
“But if tensions escalate, Chinese leaders could steer consumers away from American-brand cars,” wrote Dunne.
He noted Chinese leaders did just that in the past with Korean and Japanese cars to “great effect” when political relations soured.
“So, a reality check is in order,” said Dunne. “Intensifying competition from Chinese automakers, plus a dose of acute consumer nationalism, could spell the beginning of the end of Detroit in China.”
China salesBesides fierce competition in China — about 110 car brands are sold in China, 60 of which are Chinese — the Chinese government is also pushing automakers for more electric vehicle production by 2020, said Bonnell. It has set strict regulations around EVs, he said.
As Ford and FCA try to compete, they are already behind the curve. Through June, Ford had sold 313,000 vehicles, down 38 percent from the same period a year ago giving it a 2 percent market share in China, said Bonnell, who references data from LMC Automotive.
In that same period, FCA's Jeep brand was down 34 percent to 115,000 units. It sells such a small number of vehicles, though, that FCA's market share is negligible, said Bonnell.
For GM, through June, sales of its Buick, Chevrolet, Cadillac brands were 960,000, up 10 percent from the same period a year ago. Including GM's minority share in SAIC GM Wuling, GM's sales through June totaled 2 million, up 7 percent from the same year ago period, said Bonnell.
GM President Dan Ammann told Wall Street analysts Thursday that GM is successful in China because it has invested in the product and the dealer network there for many years.
But the market in China has been intensely competitive, Ammann said. GM continues to invest in its business there and, “Make sure we’re prepared for the next phase of the market there” as it pushes for more electric vehicles and strict emissions.
The strongest non-Chinese automaker is Volkswagen, which has seen consistent growth in China.
“They were the first one to set up in the mid-'80s and they have strong partners and worked hard to get their brand established and dealer network established,” said Bonnell. “Being the first mover offered a big advantage for them.”
Volkswagen had sold 2.1 million cars through June in China, up 7 percent from the year-ago period, he said.
Ford's problemsFord China has struggled with an aging product portfolio and a thin, unprofitable dealer network. In the second quarter, it lost $483 million, a decline of $506 million from last year, Ford's CFO Bob Shanks said in a call with analysts.
Current products in the showroom are dated. Five new models, arriving this autumn, should help, but there is a lot of lost ground to make up. Ford China sales this year could fall 25 percent below their 2016 peak of 1.2 million. That's a 300,000-vehicle hole to dig out of, Shanks said.
Shanks blamed unfavorable market factors for Ford and Lincoln imports into China, and lower net pricing, some of which is related to tariff changes.
But Ford's Jim Farley said the deterioration of Ford's business in China has been swift.
“I can assure you, we understand the importance of getting our China business back on track,” Farley, Ford's executive vice president and president of Global Markets, told analysts.
Ford will launch a new, low-priced, midsize sport utility vehicle called Territory in China early next year, Farley said. The SUV will be built in China and was developed strictly for that market. It will give Ford a better chance to compete against lower priced vehicles than it had in the past there, said Farley.
Ford combats China struggles with low-cost SUV
Ford has serious shortfalls in its go-to-market capabilities, “including inadequate dealer profitability, excess stock including our high-volume (compact) cars,” Farley said. “We haven't maintained a fresh enough product lineup for this rapidly changing and dynamic China market.”
Those missteps along with an uncompetitive cost structure hurt Ford China, and Farley said Ford is taking “urgent action.”
By the end of next year, 60 percent of Ford China's vehicle lineup will be refreshed or new, said Farley. He said Ford is improving its competitiveness with aggressive cost cuts and more localized product such as the Explorer.
“We're close to hiring a new CEO for Ford China and we have already onboarded a number of local Chinese talent in key management positions such as marketing and sales leads for both Ford and Lincoln to drive not only our strategy but they're already reinvigorating our sales,” said Farley.
But until all of Ford's SUVs are launched in China, he warned, “We'll continue to face this mix deficit.”
GM's successFord's new products will be competing against several new products from GM China, which already has a strong foothold in the market.
In the second half of the year, GM China will introduce 10 new models including the Cadillac XT4 small SUV.
“The focus is on high-demand segments including SUVs and multipurpose vehicles and luxury vehicles,” GM CEO Mary Barra said in an analyst call.
GM China reported record results in the second quarter with equity income of $600 million, up $100 million year-over-year. The bulk of those sales are from Baojun, Cadillac and Chevrolet, and GM said it had a “continued focus on cost efficiencies” there.
GM will incur higher costs in the second half because of the cost to launch new vehicles. With competitors launching new vehicles, pricing will come under pressure too, she said.
“But we remain confident in our 20 years of market strength in China,” said Barra. “Due to established local and U.S. brands and our strong Chinese partner, our current outlook does not assume any comprehensive impact in China beyond existing trade flows.”
Still, GM's growth is driven by the affordable Baojun (pronounced bow joon) brand and the surging Cadillac brand. Buick and Chevrolet are “crimped at the edges and stalling,” wrote Dunne.
Baojun is GM's ultrasubcompact that costs less than $15,000. It will account for one in every four GM China sales this year, said Dunne.
But Dunne wrote that the “squeeze on Chevy and Buick reveals a larger, deeper threat to the Detroit Three in China.” Consumers there are much less attracted to mass market global brands than they were a few years ago. Instead, they are switching to Chinese brands such as Great Wall, BYD and Geely, wrote Dunne.
Geely is China's largest private automaker. It will sell almost twice as many cars in China as FCA and Ford combined this year, said Dunne.
FCA's futureIn Fiat Chrysler's second-quarter earnings call, CEO Mike Manley acknowledged that “the biggest challenges we face, and frankly we're going to continue to face to some extent for the balance of the year, are all focused in China.”
Changes in the tariff drove down sales of Maserati cars and shipments to dealers, Manley said. But he was quick to add, “With all of these duty changes behind us, I'm clearly expecting improved sales performance,” Manley said.
That's provided that FCA manages inventory to meet demand ahead of the transition to China's tougher emission regulations, he said. FCA has lowered its expected..

Carmakers struggle to hire hackers, the hottest job in the industry

Carmakers struggle to hire hackers, the hottest job in the industryMcConnell Trapp has a special set of skills.
He can hack into cars and control aspects of them from his computer.
Trapp, 39, who has a law degree and speaks Japanese fluently, started hacking cars about 16 years ago. He used a computer, some various vehicle spare parts, a turbocharger and the help of few good friends to increase the 120 horsepower normally found in a 1995 Honda Civic sedan to almost 300 hp.
“It was a lot of trial and error,” said Trapp, who admitted he “blew up a lot of engines.”
Today, Trapp is director of Speed Trapp Consulting in Troy. He works as a legal “techno” consultant. He is one of the good guys who uses his ability to infiltrate car computer systems and uncover potentially dangerous flaws that would make them vulnerable to someone with malicious intentions. But if he were a bad guy, he knows how he could compromise several cars at once. Cars in operation today.
“I'd walk into a dealership. I would see if they have a WiFi router designated for customers and gain access into that first,” he said.
Then, if the dealership's service department server is hooked into the main system, he'd infiltrate the service department's storage database that the technicians use for vehicle diagnostics. From there it's as easy as inserting a “fake” update resembling other files for vehicles and infecting multiple cars there for service.
“Hypothetically, I could make a running engine turn off, or render other aspects of the car either useless, or just make it appear as though the vehicle constantly needs service or recalls when it actually doesn't,” he said. “That's the danger, that's the scary part.”
It's that threat associated with vehicle technology that is driving many auto companies and other industries to increasingly look to hire hackers with ethics like Trapp, called “white hat” researchers. Those hackers can identify cybersecurity flaws and thwart nefarious actions of “black hat” hackers.
But finding white hat hackers to hire is incredibly hard, personnel experts said. First, few people have those skills. Then, they must be vetted to make sure they have both the technological acumen and the moral compass for the job. The need for them is outpacing the thin supply.
Hackers for hireTypically, computer hacking is associated with a person or a group with malevolent intentions. The hacker gains unauthorized access to a computer and a technology dependent system to do harm.
In the 2017 movie, “The Fate of the Furious,” for example, actress Charlize Theron's character hacks into every self-driving car in New York City, takes remote control of them and causes mass chaos and destruction.
Depending on which hacker you talk to, some, such as Trapp, say such a movie scenario is unlikely in real life, especially if a human is still needed to turn on a car. Others say, though, that we are almost to a point where that could happen.
General Motors is leading the way in developing autonomous cars. It has promised to bring them to market in urban areas in a taxi-like platform next year. But the fear of scenarios such as the one in the movie, as well as a desire to keep customers' information protected in regular cars, is ratcheting up the need for the company to hire white hat researchers.
GM launched a new program this summer called Bug Bounty. It took GM years of forming relationships with white hat hackers. GM will now bring those hackers to Detroit and pay them a hefty bounty or cash payment for each “bug” they uncover in any of GM vehicles' computer systems.
Read more:
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Fiat Chrysler has had a Bug Bounty program in place since 2016. It pays white hat hackers up to $1,500 each time they discover a previously unknown vulnerability in vehicle software.
Last year, GM's self-driving unit, Cruise, hired famous car hackers Charlie Miller and Chris Valasek. The two, dubbed the “Cherokee Brothers” by Trapp and others in the hacking community, gained fame in 2015 when they proved they could remotely stop a Jeep Cherokee.
GM approachGM conducts its cybersecurity using a three-prong approach: It hires third-party companies that employ white hat hackers, it has its own hackers on staff and it has the Bug Bounty program.
GM and Cruise employ 25 to 30 white hat hackers on staff today compared with five to 10 in 2013, said Jeff Massimilla, GM's vice president of Global Cybersecurity. GM has about 450 people dedicated to all other aspects of cybersecurity across the company, he said.
“As we continue to get more connected and into AV, we will want to increase that number of white hat researchers,” said Massimilla.
Massimilla declined to say how much GM is investing to hire cybersecurity personnel, but he said, “It’s an extremely high priority, we’re well funded and well resourced.”
GM relies on its three-prong approach because of the shortage of white hat hackers, he said. Plus, many don't want to work for one company.
“Hacking a Camaro is pretty darn exciting, hacking an autonomous vehicle is pretty darn exciting — but it's tough to attract that talent because they’re just not there or they want to do it through bounty programs where they can work from home and have flexibility,” said Massimilla.
High priceMore than half of employer demand related to connected and self-driving cars is for workers in data management, cybersecurity and information technology, said the 2017 Connected and Automated Vehicles (CAV) Skills Gap Analysis by the Workforce Intelligence Network.
In 2015-16, there were 10,344 total job ads placed for CAV-related employment, and 5,400 of those ads were for jobs in data management and cybersecurity, the report said.
And, as demand rises for such skilled workers, the supply remains flat, thus inflating salaries. The average salary for CAV jobs in 2014-15 was $89,616. In 2015-16 that rose to $94,733, the WIN report said, citing data from Burning Glass Technologies.
There's a gap in demand for cybersecurity personnel, especially white hat hackers, versus the supply cuts across many industries. There also is in health care and insurance, said Bob Zhang, CIO of Strategic Staffing Solutions in Detroit, which works to find contract workers to fill such roles for its clients.
“The supply is really low right now. By 2020, the job gap will be 2 million jobs. That means 2 million unfilled openings in cybersecurity,” Zhang said. “You can’t just teach hacking. It requires a whole lot of knowledge from IT and computer science … you have to be the jack of all trades with a deep interest in systems networking.”
Some organizations offer training courses to verify a hacker as a “certified ethical hacker,” he said.
But most large corporations find it beneficial to hire third parties staffed with white hat hackers for specific projects.
“If I'm an IT manager, do I really want to hand-pick somebody and say, 'I’m going to put all of this multibillion-dollar company in the hands of the people I hire?' Or outsource it to a company that focuses on this type of service? Many do both.”
The gap in cybersecurity job demand versus supply is probably the largest gap in the IT industry's history, Zhang said.
“Once the security world matures and the amount of security providers increase, the demand will even out,” he said.
Creating the next generationSome colleges and universities offer courses in cybersecurity, but expanding that curriculum and recruiting younger people into vocational hacking courses to grow the talent pool can't happen fast enough to meet the soaring demand, said Jennifer Tisdale, director of connected mobility and infrastructure for Grimm.
Grimm is a technology consulting company with a new “car hacking lab” in Sparta, Michigan. It uses white hat researchers for automotive clients as well as other industries.
“We need to hire 20-plus researchers in the next two years,” said Tisdale. “I don't have time to wait for a college to structure a program for cybersecurity.”
College programs might not be the full answer anyway, said Brian Demuth, Grimm's CEO.
“There’s not a degree that should be created to do all of this, but there are things like extended learning that can help,” he said.
Grimm, which has 46 employees scattered across the country, looks for people who have a “fundamental view of computer science” and then trains, teaches and grows them from there, said Demuth.
Demuth, 38, is a hacker himself with a computer science background and a passion for tinkering with cars.
“I was always interested in how things worked. I grew up the son of a Marine, and he was in the intelligence field, so there were always computers and amateur radios around,” said Demuth. “My father was into mechanics and working on vehicles and making them start faster or stop faster. That’s what drove my passion into this.”
The hacker stigmaPart of the difficulty in recruiting hackers lies in the stigma surrounding the pursuit.
Matt Carpenter, 44, is Grimm’s lead researcher dedicated to automotive, aerospace and energy businesses. Carpenter works with four other white hat researchers in Grimm's car hacking lab.
“What I do and my team does is everything that can be done by an attacker,” Carpenter said. “We do this so that we can benefit the community and identify problems before someone with bad motives can do it.”
When asked if he calls himself a hacker, he said, “I like to be called a good guy, but there’s no way to be considered a good guy by everybody and do what I do. There’s a great stigma around being a hacker.”
Many people misunderstand the work white hat hackers do, which Carpenter said is “vital” to secure every car on the road.
“It takes a lot of deep knowledge and deep work,” said Carpenter. “You can’t pull me ..

Mich. firm 'out of business in three months' if auto tariffs kick in

Mich. firm 'out of business in three months' if auto tariffs kick inMary Buchzeiger wakes up each day wondering if the Auburn Hills-based auto supplier she's spent years building is on path to earn a billion dollars in annual sales … or spiral into bankruptcy.
Her uncertainty rests on whether President Donald Trump's proposed 25 percent tariff on foreign cars and parts is adopted. If it is, Buchzeiger, 44, will brace for the worst.
“We may have to start all over again and reconfigure the business,” said Buchzeiger, CEO of Lucerne International. “There's going to be some carnage along the way and it's going to be companies like mine that are first to go. We don't have deep pockets.”
Lucerne International sells about $50 million worth of parts it makes each year. It has eight plants in Asia where it fabricates auto parts using steel and aluminum before shipping them back to the U.S. for final production for its various automaker customers, the biggest being Fiat Chrysler.
Lucerne, for example, makes all the hinges on the Jeep Wrangler SUV. That means if Lucerne goes under, FCA may have to find another company to make those hinges, and there aren't very many.
Long-term contracts with its customers block Lucerne from passing its higher raw material costs or tariffs on to them. And Lucerne's profit margins are too thin to absorb the higher costs.
“I can't sell the products for less than what it costs me to produce them, and that's what would happen with the tariffs,” Buchzeiger said. “We'd be out of business in three months.”
Growing up carsLucerne has considered opening a U.S. manufacturing plant to lower its reliance on Asian imports, Buchzeiger said. But those plans are on hold because the company's future is in question, she said.
The postponed plant would have created about 125 full-time jobs, she said, although with the low U.S. unemployment rate there are few skilled trade workers available to hire to ramp up production to fulfill orders.
Buchzeiger is intimately familiar with the complexities of the automotive supply chain. She grew up in Ortonville and her family was deeply rooted in the car business. She started working in it when she was a kid and her father quit his purchasing manager job at General Motors in 1984 to start Lucerne International.
“My parents couldn't afford day care, so I went to work with them over the summers,” Buchzeiger said.
Her parents had a small plant in Pontiac and Buchzeiger said, “I was driving a forklift truck at age 13. I've always been around the business and I've always worked.”
In her 20s, Buchzeiger moved to East Lansing intent on going to Michigan State University. Instead, she started a marketing company there producing menus for bars and restaurants. She graduated from Lawrence Technological University in Southfield in 2000 with a bachelor of science in industrial operations. She went to work for Lucerne, which had about $2 million in annual sales at that time.
After working her way though the company, in 2005, she recognized that Lucerne needed to expand its presence in Asia.
“In 2003, 2004 and 2005 we started to see all our products move offshore, so it was sink or swim,” Buchzeiger said. “It was a good time to open our doors, get on a plane and make some things happen on the other side of the world.”
She bought the company from her father in 2015. It had $12 million in annual sales and had 14 employees at the time.
Going gangbustersOver the past three years, Lucerne's business has been “gangbusters,” Buchzeiger said.
“We were growing significantly. We are at just under $50 million in sales and 46 employees,” Buchzeiger said.
Fourteen of those employees are in Asia and one is in Europe. The company's goal is to hit $1 billion in annual sales in nine years, she said.
That's why it became critical to protest Trump’s first round of tariffs on Chinese products, because 90 percent of Lucerne’s revenue was tied to products that fell under that provision. Namely, the hinges used on the Wrangler, which is assembled in Ohio.
Trump's tariffs on Chinese goods, including autos and parts, under Section 301 of the Trade Act of 1974, are separate from the Commerce Department investigation of whether cars and parts made elsewhere are a threat to national defense and therefor eligible for new tariffs under Section 232.
Read more:
Tariff hearing: Tax would cut U.S. jobs
Automakers: Trump tariffs would cost consumers
“The Jeep Wrangler is half my business. It's $25 million in sales, and that is 25 percent tariff, so it's a huge increase in price,” Buchzeiger said.
Buchzeiger and her leadership team waged a campaign to win an exemption. “I went to Washington and testified,” she said.
It worked; the administration removed Lucerne's product codes from the tariff list.
“That was a small victory,” Buchzeiger said. “The new threat is the rest of the tariffs. The 301 is just China. Now they have another list and pretty much everything else we make in Asia is effected by that.”
Many of her contracts are negotiated for longer terms, so if Lucerne faces rising costs to do business, it cannot charge more for its parts.
“There's no caveat for tariffs. They're watertight. You cannot come in and raise your prices,” Buchzeiger said. “People don't understand the intricacy of the supply chain. We produce those hinges at eight different facilities in China and Taiwan, then they come into Michigan before being shipped to Ohio. The bigger suppliers have deeper pockets and can absorb costs and move things around. The smaller ones can't. It'll be bigger than 2008 when we crash.”
'A holy mess' Buchzeiger did not travel to Washington to testify against the proposed 232 tariffs, but submitted written testimony about the possible impact on Lucerne. She said, “I feel like we're fighting for the entire industry.”
Buchzeiger said Trump's proposed 232 tariffs will make the U.S. automotive industry much less competitive with auto companies around the world.
“It's going to crush our race for autonomous vehicles and for future vehicles,” she said. “We're going to lose.”
Lawyer Catherine Karol at Butzel Long in Detroit said her supplier clients are being hurt by the 301 tariffs already in place. Butzel Long represents more than 3,500 clients globally, about a third of which are in the car business, almost exclusively suppliers, she said.
“It's dire for some of these smaller suppliers,” said Karol. “They are looking at possibly shutting their doors. They're getting choked.”
Ultimately, the increased costs will be passed onto consumers, Karol said.
“Auto parts suppliers are getting hit in all directions: Steel, aluminum … it will just keep growing,” Karol said. “Their heads are spinning. Then when you propose the 232 tariffs on the auto parts … the way the global supply chain is set up, parts go back and forth numerous times no matter where the vehicle is assembled, so that one will be a holy mess in addition to the tariffs already impacting these suppliers.”
GM, Toyota warn of job cuts over auto tariffs
Scrambling for a solutionBuchzeiger said she understands the motive behind the Trump administration proposing the tariffs: Bring manufacturing jobs back to the U.S. That's harder than it sounds, she said. For one thing, when she investigated producing parts here, she could not find an existing plant with the capacity to build the volume of parts she needed.
Already, Lucerne has taken about a 20 percent hit on its parts sales to BMW. That's because China raised the import tax on cars from the U.S. to 40 percent in retaliation for Trump's higher tariffs on Chinese goods.
BMW builds SUVs in Spartanburg, South Carolina, and exports them to 140 countries, including China. BMW has scaled back the number of cars it plans to sell in China now because of the tariff. Therefore, it is ordering fewer parts from Lucerne, she said.
Besides the financial hit, the tariff issue has been an overall distraction to business, Buchzeiger said.
“We've wasted so many resources on dealing with these tariffs and rather than me spending my time running my business and doing what I'm good at, I am spending time in Washington and addressing this issue,” Buchzeiger said. “Other companies have told me they've had to pull (people) off their regular jobs and put teams together to address these tariffs.”
She said a supplier she knows sold one of his divisions because he needed to get out from under the tariffs and change up the company's operations.
“I want to keep growing and bring manufacturing back to the U.S., but we need time,” Buchzeiger said. “I can't even fill my open spots right now because of the low unemployment rate. There is a shortage of skilled trades. I don't have people to put in a plant, so it's a compound issue.”
So Buchzeiger will continue to forge forward and devise a contingency plan in the hopes of securing Lucerne's future. She said before she has to lay off any of her employees, she would first cut back on some of the community programs Lucerne sponsors. And she will continue to lobby Washington.
“It's my duty to stand up and speak out,” Buchzeiger said. “I'm always a glass is half full kind of person, so I know there's a future. The size of it? I'm unsure of and we're looking at what we can do so that we don't have to lay one person off.”
Contact Jamie L. LaReau at 313-222-2149 or jlareau@freepress.com
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Could Musk's tweet about taking Tesla private lead to legal trouble?

Could Musk's tweet about taking Tesla private lead to legal trouble?Nine words tweeted by Tesla CEO Elon Musk Tuesday afternoon raised questions for the outspoken auto executive.
At 12:48 p.m. Musk tweeted: “Am considering taking Tesla private at $420. Funding secured.”
The tweet caused a stir in the stock market. Tesla shares spiked 11 percent to close at $379.57 after trading was halted for part of the afternoon while investors awaited clarification. The stock's record high was $389.61 on Sept. 18, 2017.
But the tweet could be in violation of state and federal laws, said a former federal prosecutor.
“You’re not allowed to issue misleading information that investors could act on, and it looks like investors acted on it,” said Peter Henning, a professor at Wayne State University Law School specializing in securities law.
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Legally, shareholders could sue Musk for a breach of fiduciary responsibility, said Henning. If the tweet gives an impression that Musk is trying to “stampede the board,” that’s a violation of state fiduciary duty of directors, Henning said.
“You’re not allowed to strong-arm the directors, even if you are a 20 percent stakeholder” as Musk is, Henning said.
If the Securities and Exchange Commission believes Musk's tweet misled shareholders, the SEC could deem it a violation of anti-fraud prohibition in the federal securities law, said Henning.
“I suspect the corporate lawyers are scrambling right now and hoping the SEC doesn’t go after him and the company, because it could be viewed as a statement from Tesla,” said Henning. “If it misleads investors, the SEC can bring a case even if no one’s been harmed.”
The SEC in 2013 did say that companies can use social media such as Facebook and Twitter to announce key information so long as investors have been alerted about which social media will be used to disseminate the information.
Musk offered some clarification to his tweet later, saying the “only reason why this is not certain is that it’s contingent on a shareholder vote.”
Musk, whose tweets initially caused confusion as some investors questioned whether he had been hacked, later confirmed his thinking through Tesla's official website.
“I think this is the best path forward,” he said in an email to employees, further clarifying that “a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best.”
The explanation could have been late, said Henning. Corporate governance requires a company officer to first notify the board of directors of any deals, then negotiate a deal with the board.
“The tweet is potentially misleading. It didn’t give the kind of details that shareholders would want. The key detail being that it’s not a done deal. It sounded like, 'We’ve got the financing and we’re done.' That’s not how it works.”
He added, “If an analyst said, 'Musk should take the company private,' people would shrug their shoulders. It’s much different when the CEO says it. The law is protective of shareholders. You have to get them the best deal, and whether $420 is a fair price or not? We don’t know.”
Contact Jamie L. LaReau at 313-222-2149 or jlareau@freepress.com. Nathan Bomey of USA Today contributed to this report.
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