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Fiat Chrysler to face $105M penalty, oversight

David Shepardson
Detroit News Washington Bureau

Washington — Fiat Chrysler Automobiles NV will face at least three years of oversight by an independent monitor into its auto safety efforts as part of a sweeping, record-setting $105 million settlement in the government’s investigation of nearly two dozen recalls covering 11 million vehicles.

The Italian-American automaker admitted it broke the law in failing to quickly repair vehicles in three separate recall campaigns and agreed to buy back as many as 578,000 older Ram pickups for steering issues after some owners said they have waited 18 months or longer for repairs because of parts shortages.

“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 Sunday. “This civil penalty puts manufacturers on notice that the department will act when they do not take their obligations to repair safety defects seriously.”

The penalty includes a $70 million payment by Fiat Chrysler, plus $20 million that the automaker will spend on safety efforts and $15 million in additional penalties if the automaker fails to perform properly. The automaker can include rebates and recall incentives as part of the $20 million it must spend on safety over three years.

The settlement is significant for Fiat Chrysler. It is equal to about as much as the company’s reported net income of $101 million in the first three months of the year.

But it is a fraction of the $700 million or more in fines Fiat Chrysler could have faced. The National Highway Traffic Administration could have fined Fiat Chrysler $35 million in each of 23 recalls under investigation if the agency had determined it failed to meet legal requirements in each of the campaigns.

NHTSA said in the 23 recall campaigns Fiat Chrysler failed in a timely fashion to fix vehicles, notify owners of defects or notify NHTSA of recalls or safety related communications in a timely fashion. The agency earlier this year accused the automaker of misleading it.

Vehicles in the buyback program include 265,000 2008-12 Ram trucks for a tie-rod assembly steering problem; 35,942 2008-12 Ram 4500 and 5,500 trucks recalled for similar steering problems; and 278,000 2009-12 Ram pickups, 2009-11 Dodge Dakotas, 2009 Dodge Durangos and Chrysler Aspens for a rear axle pinion nut problem that can cause the axle to lock up.

FCA must pay the purchase price minus “a reasonable allowance for depreciation,” and will give a 10 percent bonus to owners who haven’t gotten the recalls completed. The automaker will be able to fix the vehicles and resell them.

NHTSA has a report of one death and 32 reported crashes related to the steering defects since the recalls were announced.

Fiat Chrysler admitted it violated the law in all three recall campaigns by failing to fix those vehicles in a timely fashion. NHTSA said it received complaints that some owners have waited two years for replacement parts

In addition, Fiat Chrysler will give owners $100 gift cards for getting recalls completed on more than 1 million Jeeps recalled for gas tank fire risks when hit from behind. It will offer a $1,000 bonuses on trade-ins for new vehicles for owners of 1993-98 Jeep Grand Cherokees. They also can use the $1,000 toward service on another Fiat Chrysler vehicle.

Sweeping agreement

The sweeping agreement requires FCA to revise training and recall procedures that include dealers, hire an independent monitor to reform and oversee safety efforts, lead industrywide safety and research efforts and hold regular meetings with NHTSA on safety issue. The monitor will write regular reports, be able to interview any employees and have office space at the company’s Auburn Hills’ facilities.

The settlement will last at least three years and could be extended for a fourth year at NHTSA’s request.

Fiat Chrysler said in a statement it accepts “the resulting consequences with renewed resolve to improve our handling of recalls and re-establish the trust our customers place in us. We are intent on rebuilding our relationship with NHTSA and we embrace the role of public safety advocate.”

That comes just months after Fiat Chrysler CEO Sergio Marchionne publicly sparred with the agency.

The settlement suggests that NHTSA, under new leadership since December, is taking a far tougher line with automakers. Administrator Mark Rosekind has repeatedly vowed to use every tool available to prod automakers into behaving better. He has directly called automakers and demanded they recall vehicles. At the same time, the Obama administration has asked for sweeping new authority from Congress to order recalls and to hike maximum fines for delayed recalls to $300 million per campaign, up from $35 million.

“Fiat Chrysler’s pattern of poor performance put millions of its customers, and the driving public, at risk,” Rosekind said. “This action will provide relief to owners of defective vehicles, will help improve recall performance throughout the auto industry, and gives Fiat Chrysler the opportunity to embrace a proactive safety culture.”

Fiat Chrysler has been recalling vehicles rapidly in recent weeks.

On Friday, it agreed to recall 1.4 million cars and trucks because of concern that their onboard computers can be hacked and allow functions such as braking and steering to be controlled remotely. That callback that came under government pressure. NHTSA is investigating whether the fix works and ensuring all vehicles are covered.

On Saturday, the automaker agreed to recall 2.2 million trucks in two separate recalls for inadvertent air-bag deployments.

NHTSA and Fiat Chrysler began to clash more than two years ago, when the agency demanded the recall of 2.7 million Jeeps linked to more than 60 deaths because of gas tank fires that have occurred when the SUVs are hit from behind.

Under government pressure, the automaker recalled an estimated 1.56 million 2002-07 Jeep Libertys and 1993-98 Jeep Grand Cherokees for the problem in June 2013. As a fix, it agreed to install trailer hitch assemblies to protect the gas tanks, which are vulnerable because of their location between the rear axle and the bumper.

Over the last year, the agency has questioned a growing number of Fiat Chrysler actions, including its handling of vehicles with potentially defective Takata air bags.

Latest in a series

The Fiat Chrysler settlement is the latest in a series of consent orders NHTSA has filed against big and small manufacturers since 2014 including General Motors Co., Honda Motor Co., child seat manufacturer Graco Children’s Products and heavy-duty truck manufacturers Forest River Inc. and Spartan Motors Inc.

The previous record penalty was set in January when Honda paid $70 million after it admitted it failed to follow early warning reporting requirements.

The settlement is similar to the three-year consent order reached with GM last year over its ignition switch defect that is now tied to nearly 125 deaths and more than 265 injuries.

NHTSA initially sought a $70 million fine by GM and an independent monitor, but agreed to settle for just $35 million — then a record fine — and no independent monitor, a person involved in the talks told The Detroit News. Earlier this year, NHTSA exercised its right to extend the agreement through at least May 2016.

The agency is still reviewing Fiat Chrysler on other fronts.

In June, it opened an investigation into 630,000 Jeep Wranglers for an electrical problem that may cause air bags to not work properly. It launched a probe into 121,000 2013 Dodge Darts after it received 18 complaints that the brake pedal can suddenly become hard to depress and lengthen braking, It opened a separate investigation into 20,000 model-year 2014 Jeep Grand Cherokees for problems with automatic braking systems.

And it’s reviewing whether Fiat Chrysler’s recall fix of nearly 900,000 SUVs worldwide for sun visor fires were enough after reports of eight incidents in repaired vehicles.

The penalty is the largest ever imposed by NHTSA against an automaker but a fraction of the $1.2 billion fine won by the Justice Department against Toyota Motor Corp. after the automaker was charged with wire fraud stemming from the government’s four-year investigation into the company’s concealment of sudden-acceleration problems.

dshepardson@detroitnews.com