Business & Tech
    Next Score View the next score

    Emissions settlement could cost Fiat Chrysler $800m

    Fiat Chrysler Automobiles world headquarters in Auburn Hills, Mich. The Environmental Protection Agency found that the company had used illegal engine-control software that turned off pollution controls under certain driving conditions.
    Carlos Osorio/Associated Press
    Fiat Chrysler Automobiles world headquarters in Auburn Hills, Mich. The Environmental Protection Agency found that the company had used illegal engine-control software that turned off pollution controls under certain driving conditions.

    NEW YORK — 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.

    Including extended warranties and other provisions, the settlement could cost the company close to $800 million.

    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 EPA contended that the software enabled the vehicles to pass emissions tests while allowing them to release higher levels of pollutants in normal driving.

    Advertisement

    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.

    Get Today's Headlines in your inbox:
    The day's top stories delivered every morning.
    Thank you for signing up! Sign up for more newsletters here

    It will also pay $19 million to mitigate excess emissions from noncompliant vehicles in California, which also sued the company.

    As part of the agreement, Fiat Chrysler will recall about 100,000 diesel-powered Ram 1500 trucks and Jeep Grand Cherokee SUVs 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.

    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 could cost up to $300 million, the Justice Department said. 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.

    Advertisement

    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 at noon Thursday.

    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 SUVs, 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 federal investigation into Fiat Chrysler followed the vast diesel emissions-cheating scandal that rocked Volkswagen. But US officials viewed the Fiat Chrysler matter as much less serious, and stopped short of accusing the company of intentionally engineering the software to cheat on emissions tests.

    Volkswagen acknowledged that it had used “defeat device” software 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.

    Advertisement

    In Germany, the scandal resulted in the ouster of Volkswagen’s CEO, 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.

    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 SUVs. 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 US 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 SUV in 2020, followed by an electric hatchback and possibly an electric minivan.