Fiat Chrysler settlement with gov't could prove costly
Jul. 28, 2015
DETROIT (AP) — Fiat Chrysler could be required to lay out billions 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 Italian-American automaker must offer to buy back 500,000 Ram pickup trucks and other vehicles in the biggest such action in U.S. history. It must also either allow owners of more than a million older Jeeps with vulnerable rear-mounted gas tanks to trade them in at above market value or cover the cost of a repair. Fiat Chrysler faces a record civil fine of up to $105 million.
Fiat Chrysler shares dropped XX percent Monday morning after the deal with the National Highway Traffic Safety Administration was announced over the weekend.
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.
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Even so, the settlement leaves out about 1.7 million owners of Rams and Jeeps whose vehicles potentially have the same problem as those covered. What can those people do?
The Ram pickups, which are the company's top-selling vehicle, have defective steering parts that can cause drivers to lose control. Some previous repairs have been unsuccessful. Owners also have the option of getting them repaired, the agency said in documents released Sunday.
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.
It's unclear just how many Rams the automaker will have to repurchase, but the cash outlay could be substantial. 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, if Chrysler had to buy back even a quarter of the trucks at issue, it could spend $2.5 billion.
Fiat Chrysler said more than 60 percent of the trucks already have been fixed, and the company is allowed to repair and resell the trucks it buys back.
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.
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. It's another step in NHTSA's effort to right itself after being criticized for lapses in some highly-publicized safety recalls.
In a separate statement, Fiat Chrysler said it accepted the consequences of the agreement "with renewed resolve to improve our handling of recalls and re-establish the trust our customers place in us."
The consent order that Fiat Chrysler agreed to requires it to notify owners who are eligible for buybacks and other incentives.
Fahey reported from New York.