Economy In Gear

Fiat Chrysler has its own 'Dieselgate' problem

With Volkswagen's emissions scandal dominating auto news for more than 17 months, you might have missed that Fiat Chrysler is facing one of its own. 

A 2015 Chrysler 200 automobile rolls down the assembly line at the Sterling Heights Assembly Plant in Sterling Heights, Mich. (March 14, 2014).
Paul Sancya/AP/File
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With Volkswagen's Dieselgate crisis dominating the auto news for over 17 months, you might've missed the fact that Fiat Chrysler Automobiles is facing a diesel disaster of its own – both in the US and abroad. Now, the automaker has explained the nature of the problem and hinted at its potential effects on investors. 

To recap

Last November, we reported that owners of Ram pickups from the 2007 to 2012 model years have sued FCA and its diesel partner, Cummins. They claim that the trucks fail to meet US emissions standards and, in fact, emit 14 times the legal limit of nitrogen oxide. A second, similar suit was filed in December.

One month later, in January of this year, the US Environmental Protection Agency blasted FCA for installing emissions control devices on not only Ram diesel pickups, but also on diesel versions of the Jeep Grand Cherokee. Though the agency hasn't yet labeled the equipment a "defeat device", it has publicly stated that the equipment is a "clear and serious violation" of the federal Clean Air Act.

Sources familiar with those allegations have said that FCA will soon face a thorough criminal investigation. However, FCA CEO Sergio Marchionne said that the issue could be resolved quickly and efficiently, perhaps with a software update for the 140,000 U.S. vehicles affected.

Latest revelations

Yesterday, FCA filed documents with the Securities and Exchange Commission that outlined the automaker's current regulatory problems. In section D, "Risk Factors", FCA explained that it is facing inquiries and/or investigations from agencies in France, Germany, Holland, and Italy. FCA said that:

"The results of these inquiries cannot be predicted at this time; however, the intervention by a number of governmental agencies and authorities has required significant management time, which may divert attention from other key aspects of our business plan, or may lead to further enforcement actions as well as obligations to modify or recall vehicles, any of which may have a material adverse effect on our business, results of operations and reputation." 

And as you might expect, FCA also explained the problems it's facing here in the US.

According to the filing, the EPA and the California Air Resources Board have both "issued a notice of violation...alleging that FCA US failed to disclose certain emissions control strategies in its application for certificates to permit the sale of model year 2014-2016 Jeep Grand Cherokee and Ram 1500 diesel vehicles." If those vehicles are found to have violated federal regulations, it could lead to a recall of 104,000 trucks and SUVs registered in the US.

FCA said that it's also busy responding to inquiries from the Department of Justice, the SEC, and attorneys general from several states. News of the inquiries from the SEC and individual states hadn't been previously disclosed.

Any or all of those probes could spell serious trouble for FCA: 

"Such investigations could result in the imposition of damages, fines or civil and criminal penalties. It is possible that the resolution of these matters may adversely affect our reputation with consumers, which may negatively impact demand for our vehicles and could have a material adverse effect on our business, financial condition and results of operations."

Granted, this was a legal filing aimed at investors, and much of it consisted of legalese to cover FCA's behind in the event that the company's stock plummets. However, the financial danger is very real: if authorities choose to levy fines, they could max out at $4.6 billion.

P.S. For those keeping score at home, this is FCA's second run-in with the DOJ and SEC in less than a year. Last summer, following investigations from both agencies, FCA changed the way that it reported monthly sales stats.

This story originally appeared on The Car Connection.

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