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U.S. Announces Settlement With Fiat Chrysler Over Emissions Fiat Chrysler’s Diesel Era Ends in a Costly Settlement
(about 4 hours later)
Fiat Chrysler Automobiles will pay hundreds of millions of dollars in penalties and remedial efforts under an agreement announced Thursday to settle lawsuits over false emissions readings on diesel vehicles. Fiat Chrysler’s boldest and most recent bid to bring diesel technology to American consumers didn’t last long, and in the end it wound up costing the automaker plenty.
Including extended warranties and other provisions, the settlement could cost the company close to $800 million. On Thursday the company agreed to pay hundreds of millions of dollars to settle lawsuits accusing it of it rigging certain diesel-powered pickup trucks and Jeeps with illegal software to pass emissions tests.
The Justice Department sued the company in 2017 over the Environmental Protection Agency’s finding that it had used illegal engine-control software that turned off pollution controls under certain driving conditions. The E.P.A. contended that the software enabled the vehicles to pass emissions tests while allowing them to release higher levels of pollutants in normal driving, conduct the agency called “serious and egregious.” Including fines, the cost of recalls, remedial efforts, extended warranties and other provisions, the settlement could cost close to $800 million.
Under the settlement, the company will pay $305 million in civil penalties in connection with those claims, the Justice Department said, and another $6 million over allegations of illegally importing noncompliant vehicles. While diesel remains a popular choice for heavy-duty pickups and larger trucks, Fiat Chrysler’s setback is the latest example of the industry’s failed attempt to develop diesel engines for smaller vehicles that are both highly fuel-efficient and clean, said Mike Ramsey, an automotive analyst at Gartner.
“It’s pretty much been a disaster,” Mr. Ramsey said. “This is evidence that they couldn’t actually make it work, but continued to sell them and market them for years.”
Fifteen years ago, Mercedes-Benz, BMW and Volkswagen joined forces to develop “clean” diesel, as part of their effort to meet stringent new regulations on tailpipe emissions being put into place in Europe and the United States. By 2011 Volkswagen had built a growing following for its diesel Jetta, Beetle and other models, and other automakers raced to offer their own clean diesel models.
Fiat Chrysler introduced diesel versions of its Ram 1500 pickup and Jeep Grand Cherokee in 2014.
For a time, environmental scientists marveled at the vehicles, which offered power and efficiency for moderate prices while seeming to emit far less pollution than older diesel engines. But research at West Virginia University eventually showed that while Volkswagen’s diesels passed emissions tests, they released far more pollutants than allowed in real-world driving.
In 2015, Volkswagen acknowledged that its diesel cars were equipped with software that activated robust emissions controls in testing but disabled them at other times, a revelation whose legal and reputational costs continue to reverberate. After that, the United States Environmental Protection Agency began looking more closely at other companies that made diesel vehicles, and Fiat Chrysler was one of them.
In 2017, the Justice Department sued the company over the E.P.A.’s finding that Fiat Chrysler had used illegal engine-control software that turned off pollution controls under certain driving conditions. The E.P.A. contended that the software enabled the vehicles to pass emissions tests while allowing them to release higher levels of pollutants in normal driving, conduct the agency called “serious and egregious.”
Under the settlement announced Thursday, the company will pay $305 million in civil penalties in connection with those claims and another $6 million over allegations of illegally importing noncompliant vehicles.
It will also pay $19 million to mitigate excess emissions from noncompliant vehicles in California, which also sued the company.It will also pay $19 million to mitigate excess emissions from noncompliant vehicles in California, which also sued the company.
“Fiat Chrysler’s effort to defeat emissions controls is a clear violation of the law, and they also tried to hide their actions,” the E.P.A.’s acting administrator, Andrew Wheeler, said in a conference call. “The E.P.A. caught them cheating.”“Fiat Chrysler’s effort to defeat emissions controls is a clear violation of the law, and they also tried to hide their actions,” the E.P.A.’s acting administrator, Andrew Wheeler, said in a conference call. “The E.P.A. caught them cheating.”
As part of the agreement, Fiat Chrysler will recall about 100,000 diesel-powered Ram 1500 trucks and Jeep Grand Cherokee sport utility vehicles from the 2014, 2015 and 2016 model years, a person briefed on the settlement said. The recall repair involves installing new software in the vehicles and providing extended warranties, at a total cost of up to $185 million, the Justice Department said. As part of the agreement, Fiat Chrysler will recall about 100,000 diesel-powered Ram 1500 trucks and Jeep Grand Cherokee sport-utility vehicles from the 2014, 2015 and 2016 model years. The recall repair involves installing new software in the vehicles and providing extended warranties, at a total cost of up to $185 million, the Justice Department said.
In addition, vehicle owners will be eligible for compensation of $990 to $3,075 from Fiat Chrysler and Bosch, a German company that supplied engine computers and software. That agreement that could cost up to $300 million, the Justice Department said. Fiat Chrysler said it would bear an estimated $280 million of that cost. Fiat Chrysler said vehicle owners could expect the recall later this year.
In addition, owners will be eligible for compensation of $990 to $3,075 from Fiat Chrysler and Bosch, a German company that supplied engine computers and software. That agreement that could cost up to $300 million. Fiat Chrysler said it would bear an estimated $280 million of that cost.
The Justice Department said the settlement did not resolve any potential criminal liability.The Justice Department said the settlement did not resolve any potential criminal liability.
“A multinational bad actor has seriously violated American emissions laws, to the detriment of the health and welfare of the American people,” said Jeffrey Clark, assistant attorney general of the department’s Environment and Natural Resources Division. “A multinational bad actor has seriously violated American emissions laws, to the detriment of the health and welfare of the American people,” said Jeffrey Clark, assistant attorney general in the department’s Environment and Natural Resources Division.
Fiat Chrysler, however, has said that its software did not amount to an illegal defeat device. “Our position on that hasn’t changed,” said Eric Mayne, a company spokesman.Fiat Chrysler, however, has said that its software did not amount to an illegal defeat device. “Our position on that hasn’t changed,” said Eric Mayne, a company spokesman.
In October, the company set aside about $800 million to cover the cost of a settling the emissions case. Fiat Chrysler stock was up more than 1 percent on Thursday afternoon. The settlement amount was in line with the $800 million that the company set aside in October to cover it, and its stock closed up 1.5 percent on Thursday.
Analysts said the company was unlikely to suffer any significant damage to its reputation with American consumers, or any long-lasting decline in sales. “If sales do drop, I think they’ll pop back up pretty quickly,” said Michelle Krebs, an executive analyst at Autotrader.
Fiat Chrysler is coming off a strong year in North America. Although the company’s profit fell on a global basis in the first nine months of 2018, its North American division’s pretax profits rose 17 percent.Fiat Chrysler is coming off a strong year in North America. Although the company’s profit fell on a global basis in the first nine months of 2018, its North American division’s pretax profits rose 17 percent.
The company is benefiting from a decision in 2015 to stop selling cars and focus on trucks and S.U.V.s, which have higher profit margins. In the United States, Fiat Chrysler’s new-vehicle sales rose 9 percent in 2018, while the overall market grew just 1 percent. The company is benefiting from a decision in 2015 to stop selling cars and focus on trucks and S.U.V.s, which have higher profit margins. In the United States, Fiat Chrysler’s new-vehicle sales rose 9 percent in 2018, while the overall market grew just 1 percent. Fiat Chrysler stopped making sedans in the United States five years ago and has added more high-margin variants of its trucks and Jeeps, a move Ford Motor is making only now.
The federal investigation into Fiat Chrysler followed the vast diesel emissions-cheating scandal that rocked Volkswagen. That case prompted American regulators to look more closely at emissions from the diesel cars produced by other companies. The company still faces challenges, however. It has not pushed into electric vehicles and self-driving technology as aggressively as Ford, General Motors and some other companies have, though its Pacifica minivan is being used in Waymo’s autonomous-vehicle testing.
But United States officials viewed the Fiat Chrysler matter as less serious in some respects than the Volkswagen case because it involved fewer vehicles and the trucks and S.U.V.s had been on the road for less time. The E.P.A. also stopped short of accusing the company of intentionally engineering the software to cheat on emissions tests. In addition, its chief executive, Mike Manley, has been on the job for just six months. He succeeded Sergio Marchionne, who died in July at 66 after shoulder surgery.
Volkswagen acknowledged that it had used defeat-device software for nearly a decade to cheat on emissions tests, and pleaded guilty to conspiracy to commit wire fraud and other charges brought by the Justice Department. The company agreed to pay $22 billion in settlements and fines, including $4.3 billion to settle a case brought by the Justice Department. It also was required to buy back 600,000 diesel vehicles from American consumers. Two Volkswagen executives pleaded guilty to criminal charges in the United States. United States officials viewed the Fiat Chrysler matter as less serious in some respects than the Volkswagen case because it involved fewer vehicles and the trucks and S.U.V.s had been on the road for less time. The E.P.A. also stopped short of accusing the company of intentionally engineering the software to cheat on emissions tests.
In Germany, the scandal resulted in the ouster of Volkswagen’s chief executive, his successor and some two dozen other executives. The former chief executive of Volkswagen’s Audi division was arrested last year and is awaiting trial on criminal charges. Volkswagen pleaded guilty to conspiracy to commit wire fraud and other charges brought by the Justice Department. The company agreed to pay $22 billion in settlements and fines, including $4.3 billion to settle a case brought by federal prosecutors. It also was required to buy back 600,000 diesel vehicles from American consumers. Two Volkswagen executives pleaded guilty to criminal charges in the United States.
Diesel engines were once seen as a key part of automakers’ strategies for increasing fuel economy and lowering emissions of greenhouse gases. But the Volkswagen scandal and diesel-emissions investigations against other companies have all but extinguished interest and demand for diesel cars and S.U.V.s. Diesel remains a popular choice for heavy-duty pickups and larger trucks.
In place of diesel cars, automakers are scrambling to develop a variety of battery-powered vehicles. Last year, Ford Motor said it planned to spend $11 billion in a bid to introduce 16 battery-powered vehicles and 24 hybrids by 2022. Audi and Mercedes-Benz plan to add new electric models this year. Both companies had previously been big promoters of “clean diesel” technology.
Volkswagen was once one of the largest sellers of diesel cars in the United States market, and had built a loyal following for the diesel versions of the Jetta and the Beetle. But sales plunged after the diesel cheating scandal. As part of a bid to win back customers, the company plans to introduce an electric S.U.V. in 2020, followed by an electric hatchback and possibly an electric minivan.