US said to seek major fines, recalls in FCA settlement

Ryan Beene
Bloomberg News

The U.S. Justice Department has offered to settle its emissions-cheating lawsuit against Fiat Chrysler Automobiles NV if the carmaker recalls 104,000 vehicles and pays a substantial but unspecified civil penalty.

The proposed framework of an offer was extended to the Italian-American automaker last week and included steps it would have to take to mitigate its past pollution and internal changes to prevent future violations of environmental rules, according to a copy of the settlement offer obtained by Bloomberg News.

The settlement “must include very substantial civil penalties” large enough to deter future violations and that “adequately reflect the seriousness of the conduct that led to these violations,” Justice Department lawyers wrote in a Jan. 27 letter to Fiat Chrysler attorneys.

Spokesmen for the company had no immediate comment. Fiat Chrysler fell as much as 14 percent on the news and closed down 7.2 percent to $22.30 on Friday, the biggest one-day drop since January 2017.

Reaching a final settlement would resolve civil violations of clean-air regulations laid out in a complaint filed May 23. The Justice Department said Fiat Chrysler had used illegal software to pass laboratory emissions tests while permitting its diesel vehicles to exceed pollution standards while on the road.

The proposed settlement doesn’t include an end to a criminal investigation into the automaker by the Justice Department related to diesel emissions.

The civil complaint was filed in federal court on behalf of the Environmental Protection Agency and the California Air Resources Board and alleged violations of the Clean Air Act.

A recall fix would have to bring all its vehicles into full compliance with emissions standards, according to the Justice Department letter. The case involves diesel-powered Jeep Grand Cherokee SUVs and Ram 1500 pickups from model years 2014-16 that regulators allege were sold with emission software that violated U.S. clean-air rules.

The case followed one filed in late 2015 against Volkswagen AG. That case touched off the biggest scandal in modern automotive history when it admitted that about 11 million diesel cars worldwide were outfitted with so-called defeat devices — embedded algorithms used to game emissions tests.

Unlike Volkswagen, Fiat Chrysler has denied intentional wrongdoing. Sergio Marchionne, the company’s chief executive, was outraged when the EPA brought its notice of violation against the automaker last year, calling the allegations “unadulterated hogwash.”

The settlement letter cites “compelling evidence” that Fiat Chrysler knew or had reason to that the vehicles did not comply with clean-air rules and that the company misled regulators, calling the conduct “egregious.”

“We are engaging in conversations but I’m not involved in the settlement talks,” Mary Nichols, chair of the California Air Resources Board, said Friday at a Bloomberg New Energy Finance event in Palo Alto. “It’s interesting that Fiat Chrysler has the same team of lawyers representing them that worked with VW.”