Fiat Chrysler settlement with US government could prove costly
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Fiat Chrysler could be required to lay out hundreds of millions of dollars to get potentially defective Ram pickups and older Jeeps off the road under a deal with safety regulators to settle claims that the automaker mishandled nearly two dozen recalls.
The National Highway Traffic Safety Administration is requiring the company to offer to buy back certain Ram pickup trucks and Dodge and Chrysler SUVs with defective steering parts that can cause drivers to lose control. More than 579,000 vehicles were initially recalled in 2013, but the company would only be required to buy back a third of those because many of the pickups have already been repaired.
The Italian-American automaker must also allow owners of more than a million older Jeeps with vulnerable rear-mounted gas tanks to trade them in at above market value or give them $100 as an incentive to get a repair.Fiat Chrysler also faces a record civil penalty of up to $105 million. That beats the old record of $70 million assessed against Honda Motor Co. for lapses in reporting deaths and injuries to safety regulators. FCA’s fine includes $70 million in penalties, at least $20 million to meet performance requirements and $15 million if an independent recall monitor finds any further violations.
Fiat Chrysler shares traded in the New York Stock Exchange dropped nearly 5 percent to close at $14.41 Monday following the weekend announcement of the deal.The settlement is the latest sign that auto safety regulators are taking a more aggressive approach toward companies that fail to disclose defects or don’t properly conduct a recall.
“Merely identifying defects is not enough,” U.S. Transportation Secretary Anthony Foxx said Monday during a conference call with media. “Manufacturers that fail in their duty to fix these defects will pay a price.”
But it ordered the buyback for up to 579,000 vehicles from the 2008 through 2012 model years. Of those, around 193,000 have not gotten the recall repairs and are eligible for either a repair or a buyback, according to recall reports submitted to the government by Fiat Chrysler.
In each case, Fiat Chrysler would be required to pay the original purchase price plus 10 percent, minus a certain amount for depreciation.
The ultimate cost of the settlement depends on how many pickup and SUV owners join in. According to Kelly Blue Book, a 2010 Dodge Ram 1500 — one of the smaller, less-expensive trucks involved in the recalls — could fetch $20,000 in a dealer trade-in, assuming the truck has 60,000 miles on it and is in “good” condition. At that rate, FCA could spend $956 million to buy back one-quarter of the vehicles at issue. The company is allowed to repair and resell the trucks it buys back.
The government knows of at least one death attributed to the steering defect.The older Jeeps have fuel tanks located behind the rear axle, with little to shield them in a rear crash. They can rupture and spill gasoline, causing a fire. At least 75 people have died in crash-related fires, although Fiat Chrysler maintains they are as safe as comparable vehicles from the same era.
FCA must offer $100 to Jeep owners as an incentive to get a repair or a trade-in incentive of $1,000 toward the purchase of another Fiat Chrysler vehicle. The repair consists of adding a trailer hitch to the Jeeps. FCA has already repaired around 441,000 of the 1.5 million Jeeps recalled.
The Jeep trade-ins could add to the tab, but they also could generate more new vehicle sales by getting customers into showrooms. Still, the total could strain the parent company, Fiat Chrysler Automobiles NV. The company posted a first-quarter net profit of $101 million and had more than $20 billion in cash and securities on March 31.
FCA said the amount it pays to repurchase vehicles will be applied as a credit to the $20 million it agreed to spend on outreach efforts as part of its $105 million fine.
“FCA U.S. does not expect that the net cost of providing these additional alternatives will be material to its financial position, liquidity or results of operations,” the company said Monday.
Both the Jeep and Ram measures are part of a larger settlement between the government and the automaker over allegations of misconduct in 23 recalls covering more than 11 million vehicles. Besides the civil penalty, Fiat Chrysler agreed to an independent recall monitor and strict federal oversight.