Fiat Chrysler could spend billions to buy back unrepaired trucks

Reuters News
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Posted: Jul 27, 2015 3:10 PM

By Paul Lienert

DETROIT (Reuters) - Fiat Chrysler Automobiles <FCHA.MI> <FCAU.N> could pay billions of dollars to buy back defective trucks as part of a settlement with U.S. safety regulators, but has the option to recover costs by reselling vehicles once they are repaired.

The auto safety watchdog on Sunday slapped the Italian-American automaker with a $105 million fine - the largest ever levied by U.S. regulators against a carmaker - over lapses in safety recalls involving millions of vehicles.

FCA said on Monday that about 193,000 Ram trucks previously recalled for suspension and steering problems had not been repaired and were therefore eligible for the buyback deal negotiated with the National Highway Traffic Safety Administration.

That could put FCA on the hook for nearly $3 billion, if the average buyback price is $15,000 per vehicle. But the net cost could be much lower. A company representative noted on Monday that the NHTSA agreement gives FCA the option of repairing and reselling any vehicles it repurchases from owners.

The automaker said in a statement on Monday that the net cost of the buyback program would not be "material to its financial position, liquidity or results of operations."

FCA shares were down 4.8 percent at $14.43 on Monday afternoon in New York trading.

SPOTTY RECORD ON RECALL REPAIRS

The fine and other provisions of the consent order are aimed at improving "the entire industry's performance" on safety, said Mark Rosekind, head of the National Highway Traffic Safety Administration, in a conference call with reporters on Monday.

Rosekind was joined by U.S. Transportation Secretary Anthony Foxx, who flagged his own efforts to make NHTSA a "much more muscular agency" in dealing with the auto industry's spotty record on recall repairs.

In addition to the $105 million fine and vehicle buyback provision, FCA agreed to provide financial incentives to more than a million Jeep owners to bring their recalled vehicles in for repairs.

The penalties address lapses spanning nearly two dozen recalls affecting more than 11 million vehicles, including older Jeeps with rear gasoline tanks linked to numerous fatal fires.

In the consent order, NHTSA said FCA had failed to repair recalled vehicles within a reasonable time, and had failed to notify owners and the agency in a timely manner. The automaker also agreed to NHTSA's appointment of an independent monitor to provide additional oversight of FCA's recall activities.

In the past week, the automaker has recalled more than 3 million U.S. vehicles, including 1.4 million to install software to prevent hackers from gaining remote control of the vehicles. NHTSA said on Friday it would investigate whether FCA's solution to upgrade software was enough to protect consumers from hackers, although FCA said in its recall announcement that it was unaware of any injuries.

Over the weekend, NHTSA also released details of two new FCA recalls, totaling more than 1.7 million vehicles, involving Ram pickups from model years 2012-2014 for inadvertent deployment of air bags.

(Editing by Matthew Lewis)