Just days ago, CEO Marchionne tried to soften up Trump.
Today, the EPA disclosed that Fiat-Chrysler was neck-deep in the diesel-gate fiasco pioneered by Volkswagen. When Volkswagen settled claims in a Canadian court in December for C$2.1 billion, it brought total costs so far to $18 billion, and it’s still not over. So these things can get expensive.
Volkswagen’s strategy at the outset had been to keep investors in the dark, and deny, deny, deny, until it finally buckled. Fiat-Chrysler (FCA) appears to follow the same time-honored corporate strategy.
The EPA today issued a notice of violation to FCA, alleging violations of the Clean Air Act…
…for installing and failing to disclose engine management software in light-duty model year 2014, 2015 and 2016 Jeep Grand Cherokees and Dodge Ram 1500 trucks with 3.0 liter diesel engines sold in the United States. The undisclosed software results in increased emissions of nitrogen oxides (NOx) from the vehicles. The allegations cover roughly 104,000 vehicles.
EPA is also investigating whether the auxiliary emission control devices constitute “defeat devices,” which are illegal.
“We continue to investigate the nature and impact of these devices,” said Cynthia Giles, Assistant Administrator for EPA’s Office of Enforcement and Compliance Assurance. “All automakers must play by the same rules, and we will continue to hold companies accountable that gain an unfair and illegal competitive advantage.”
At the bottom of the press release is the key (emphasis added):
In September 2015, EPA instituted an expanded testing program to screen for defeat devices on light duty vehicles. This testing revealed that the FCA vehicle models in question produce increased NOx emissions under conditions that would be encountered in normal operation and use. As part of the investigation, EPA has found at least eight undisclosed pieces of software that can alter how a vehicle emits air pollution.
FCA, in its response, even admitted that it has been in negotiations with the EPA for “months”:
FCA US has spent months providing voluminous information in response to requests from EPA and other governmental authorities and has sought to explain its emissions control technology to EPA representatives. FCA US has proposed a number of actions to address EPA’s concerns, including developing extensive software changes to our emissions control strategies that could be implemented in these vehicles immediately to further improve emissions performance.
On December 1, 2016, FCA and German engineering company Bosch were hit by a lawsuit seeking class action status, filed by law firm Hagens Berman. It alleged that FCA’s vehicles equipped with “Ecodiesel” engines and “Bosch EDC17″ emissions controlling software produce up to 10 times as much NOx as the legal limit, and were sold “under false pretenses.”
The profit motive? According to the lawsuit:
To appeal to environmentally conscious consumers, FCA vigorously markets its EcoDiesel vehicles as “clean diesel” with ultra-low emissions, high fuel economy and powerful torque and towing capacity. And, FCA charges a premium for EcoDiesel-equipped vehicles. For example, selecting the 3.0 liter EcoDiesel engine on the 2016 Dodge RAM 1500 Laramie adds $4,770 to the purchase price. And the 2016 Jeep Grand Cherokee Overland EcoDiesel costs $4,500 more than its gasoline counterpart.”
Alas, according to the suit, “Without cheating emissions, FCA could not achieve the fuel economy and range that it promises.”
“Dodge owners across the country fell victim to these corporations’ dirty tactics and are now faced with the reality that the premium price they paid for ‘reduced emissions’ was a joke,” said Steve Berman, managing partner of Hagens Berman.
The firm said that the defeat device affects 140,000 Dodge RAM 1500s and 9,000 Jeep Grand Cherokee models.
So for how long has FCA known that this fiasco would eventually become public and crush its shares?
But CEO Sergio Marchionne pulled an ace from his sleeve, on January 8, just days before this fiasco blew into the open, as he knew it would because the EPA doesn’t spring those kinds of surprises on a company but negotiates for months to resolve this – in Volkswagen’s case for a year!
Marchionne announced that FCA would produce three new Jeeps and a Ram pickup in the US that are now produced in Mexico and invest $1 billion in the US over the next four years, so about $250 million a year. Peanuts for a huge car company, and probably part of its existing plans to push further into trucks. It might also add 2,000 jobs to its truck production.
But FCA’s sales of cars collapsed by a catastrophic 33.5% last year, and it shut down plants and laid off workers involved in car production, and it killed the Dodge Dart and the Chrysler 200. So trucks or nothing. Hence the new investment in trucks. But the announcement earned a kudos tweet from President Elect Trump:
It’s finally happening – Fiat Chrysler just announced plans to invest $1BILLION in Michigan and Ohio plants, adding 2000 jobs. This after…
And it likely earned Marchionne some goodwill and a foot in the door with the Trump administration for future negotiations with a more pliable EPA and other government agencies.
But investors were caught by surprise today. Trading was halted, before the announcement, and when they resumed trading, they were down 14%. They’ve recovered some since, but are still down 10% for the day.
The hype has been deafening about US auto sales. And beyond the hype? Read… Annual US Auto Sales Fell for First Time since 2009 at GM, Ford, Fiat-Chrysler, Toyota, VW, BMW…
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