Biggest such action in US history; automaker also faces $105 million civil fine.
July 27, 2015
by ASSOCIATED PRESS
DETROIT — Fiat Chrysler must offer to buy back from customers more than 500,000 Ram pickup trucks and other vehicles in the biggest such action in US history as part of a costly deal with safety regulators to settle legal problems in about two dozen recalls.
The Italian-American automaker also faces a record civil fine of up to $105 million. In addition, owners of more than a million older Jeeps with vulnerable rear-mounted gas tanks will be able to trade them in or be paid by Chrysler to have the vehicles repaired.
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.
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, so Fiat Chrysler agreed to the buyback, according to the National Highway Traffic Safety Administration. Owners also have the option of getting them repaired, the agency said.
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.
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.
“Today’s action holds Fiat Chrysler accountable for its past failures, pushes them to get unsafe vehicles repaired or off the roads and takes concrete steps to keep Americans safer going forward,” Transportation Secretary Anthony Foxx said in the statement.
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.”
NHTSA has been involved in vehicle buybacks in the past, but never one of this size. A buyback usually happens when a problem is so serious that it can’t be fixed and the vehicles need to be removed from service.
Under the agreement, Fiat Chrysler has to buy back the Ram trucks for the purchase price, minus depreciation.
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% 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.
The consent order that Fiat Chrysler agreed to requires it to notify owners who are eligible for buybacks and other incentives.
Models included in the buyback offer are certain Ram 1500s from 2009 to 2012; the Ram 1500 Mega Cab 4 by 4 from 2008; and the Ram 2500 4 by 4, 3500 4 by 4, 4500 4 by 4, and 5500 4 by 4, all from 2008 through 2012. Also part of the offer are 2009 Chrysler Aspen and Dodge Durango SUVs and the Dodge Dakota pickup from 2009 through 2011.
The fine against FCA beats the old record of $70 million assessed against Honda Motor Co. for lapses in recalls of air bags made by Takata Corp.
Fiat Chrysler also received a $70 million fine, and must spend at least $20 million to meet performance requirements detailed in the agreement. Another $15 million could come due if the recall monitor finds any further violations.
Earlier this month, the safety agency held a rare public hearing where regulators detailed a litany of shortfalls: failure to notify customers of recalls, delays in making and distributing repair parts and in some cases failing to come up with repairs that fix the problems. Some of the recalls date to 2011.