Fiat Chrysler to buy back Ram pickups as part of settlement with U.S.
In a rare demand that Fiat Chrysler Automobiles buy back as many as 193,000 flawed vehicles, the top U.S. traffic safety agency signaled a tougher stance on automakers that don’t identify and quickly repair defects.
The National Highway Traffic Safety Administration, criticized for its slow response to past auto problems, also wrestled admissions from Fiat Chrysler that it violated safety regulations and ordered the automaker to pay a record $105-million fine.
“We are sending an unambiguous message to the industry,” U.S. Transportation Secretary Anthony Foxx said Monday. “If you skirt the laws or violate the laws, we are going to penalize you.”
Other automakers, notably Hyundai and Honda, have faced fines and sanctions for not moving fast enough to recall vehicles, but they weren’t forced to admit safety violations and to repurchase vehicles, analysts said.
Fiat Chrysler said it would improve its handling of recalls and “re-establish the trust our customers place in us.” It also agreed to hire a NHTSA-approved independent monitor to track, assess and report the company’s recall performance for the next three years.
“We are intent on rebuilding our relationship with NHTSA, and we embrace the role of public safety advocate,” it said.
The company could be on the hook for about $900 million worth of purchases of mostly 2008-2012 Ram trucks, according to Kelley Blue Book. The auto price information company assumed that just 25% of the owners would want to sell.
Customers can keep their trucks and opt to have Fiat Chrysler make repairs of potential suspension problems, which can cause the pickups to veer suddenly out of control.
Even so, the cost of the program could swamp the automaker’s earnings for the year, said Efraim Levy, who follows the auto industry for S&P Capital IQ. He noted that the agreement allows the automaker to repair and resell the vehicles, further reducing losses.
Forcing automakers to repurchase their cars is considered a particularly severe punishment, analysts said. It rarely occurs and typically is in small numbers.
Fiat, which combined with Chrysler last year, is a repeat offender. It issued a buyback recall in 1981 for 140,000 of its small 124 sedan from the 1970 to 1974 model years because of severe corrosion, according to the Center for Auto Safety. Fiat issued a similar buyback in 1979 for nearly 32,000 model year 1970-71 850 Spider sports cars.
Under the latest settlement, Fiat Chrysler will offer to buy back the pickup trucks at a price equal to the original purchase price minus a “reasonable allowance” for depreciation — the so-called fair market value — plus 10%.
For example, Kelley Blue Book said a 2012 Ram 1500 that sold for $34,222 new has a used value of about $19,000. Fiat Chrysler would pay that amount plus a 10% premium, or about $20,900.
NHTSA’s action against the company follows a public hearing this month that detailed problems with 23 Fiat Chrysler recalls covering more than 11 million defective vehicles.
“Fiat Chrysler’s pattern of poor performance put millions of its customers, and the driving public, at risk,” said NHTSA Administrator Mark Rosekind.
In a signed consent order disclosed Sunday, the automaker admitted violating federal safety regulations by not executing effective and timely recall remedies, failing in its notification obligation to vehicle owners and dealers, and not keeping regulators informed of safety problems.
The order also covers a recall of 1 million 1993-1998 Jeep Grand Cherokee and 2002-2007 Jeep Liberty sport utility vehicles that are prone to deadly fires when rear-ended. Owners will each receive a $100 gift card for dealer inspections and repairs. Owners of the Grand Cherokees also can trade them in for $1,000 over fair market value.
The automaker said part of its agreement with regulators includes research on industrywide safety objectives, such as identifying the best methods to identify problems, issue recalls and encourage consumers to have their cars repaired.
There are several instances in recent years of recalled cars that were never brought in for repairs before they were sold or rented and then caused fatal crashes. Only about 75% of recalled vehicles are repaired, according to industry estimates.
The regulatory action represented renewed vigor on the part of regulators and a wake-up call for the auto industry, analysts and safety advocates said.
NHTSA’s move comes after the agency itself has faced fierce criticism on Capitol Hill and by safety groups for allowing automotive safety defects to fester for years before taking action.
Lawmakers accused the agency of moving too slowly to force the recall of 2.6 million older General Motors vehicles with faulty ignition switches. The defect is now linked to at least 124 deaths.
“If automakers weren’t convinced before, NHTSA made clear with the record $105-million fine and unprecedented vehicle buyback requirement against Fiat Chrysler that it is serious and will be aggressive about going after automakers [that] don’t quickly recall vehicles with defects,” said Michelle Krebs, an analyst with the Autotrader car shopping service.
The action also could serve to make car companies even more aggressive about recalls because it might be less expensive to get on top of defects quickly instead of ignoring them and waiting for the safety regulator to step in with fines and sanctions, analysts said.
NHTSA also has changed its tactics. In previous fines, it has allowed companies to pay without always admitting to violations, said Sean Kane, president of the private consulting firm Safety Research & Strategies.
“Now, you just can’t say we disagree with you about the details but will still pay the fine to settle the issue,” Kane said. “This is a different type of enforcement. It is a very good sign and a long time coming.”
jerry.hirsch@latime.com
Twitter:latimesjerry
