BUSINESS

Fiat Chrysler To Buy Back Defective Vehicles

07/27/2015 06:03 EDT | Updated 07/27/2016 05:59 EDT
DETROIT — Fiat Chrysler could be required to lay out hundreds of millions of dollars to get potentially defective Ram pickups and older Jeeps off the road under a deal with U.S. safety regulators to settle claims that the automaker mishandled nearly two dozen recalls.

The National Highway Traffic Safety Administration is requiring the company to offer to buy back certain Ram pickup trucks and Dodge and Chrysler SUVs with defective steering parts that can cause drivers to lose control. More than 579,000 vehicles were initially recalled in 2013, but the company would only be required to buy back a third of those because many of the pickups have already been repaired.

The Italian-American automaker must also allow owners of more than a million older Jeeps with vulnerable rear-mounted gas tanks to trade them in at above market value or give them US$100 as an incentive to get a repair. Fiat Chrysler also faces a record civil fine of up to US$105 million.

The settlement is the latest sign that U.S. auto safety regulators are taking a more aggressive approach toward companies that fail to disclose defects or don't properly conduct a recall.

"Merely identifying defects is not enough," U.S. Transportation Secretary Anthony Foxx said Monday during a conference call with media. "Manufacturers that fail in their duty to fix these defects will pay a price."

Nearly 1.3 million Rams, Chrysler Aspen and Dodge Durango SUVs and Dodge Dakota pickups from as far back as the 2003 model year were recalled for the steering problem in 2013. The U.S. government excluded around 700,000 of the oldest models from the buyback program because most have already been repaired or are no longer on the road.

But it ordered the buyback for up to 579,000 vehicles from the 2008 through 2012 model years. Of those, around 193,000 have not gotten the recall repairs and are eligible for either a repair or a buyback, according to recall reports submitted to the U.S. government by Fiat Chrysler.

In each case, Fiat Chrysler would be required to pay the original purchase price plus 10 per cent, minus a certain amount for depreciation.

LouAnn Gosselin, a spokeswoman with Fiat Chrysler Canada, said the buyback program is a response to a decision by American regulators and does not include Canadian vehicles. She said the company is working with regulators on both sides of the border to determine if the decision will have any impact in Canada.

The ultimate cost of the settlement depends on how many pickup and SUV owners join in. 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, FCA could spend US$956 million to buy back one-quarter of the vehicles at issue. The company is allowed to repair and resell the trucks it buys back.

The American government knows of at least one death attributed to the steering defect.

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.

Fiat Chrysler must offer US$100 to Jeep owners as an incentive to get a repair or a trade-in incentive of US$1,000 toward the purchase of another Fiat Chrysler vehicle. The repair consists of adding a trailer hitch to the Jeeps. FCA has already repaired around 441,000 of the 1.5 million Jeeps recalled.

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 US$101 million and had more than US$20 billion in cash and securities on March 31.

Fiat Chrysler said the amount it pays to repurchase vehicles will be applied as a credit to the US$20 million it agreed to spend on outreach efforts as part of its US$105 million fine.

"FCA U.S. does not expect that the net cost of providing these additional alternatives will be material to its financial position, liquidity or results of operations," the company said Monday.

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.

In a separate announcement on Saturday, Fiat Chrysler said it was recalling 667,406 Ram pickup trucks in the U.S. and another 153,011 of the vehicles in Canada from the 2013 to 2015 model years to deal with an issue relating to airbag deployment.

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