Market News

 January 10, 2019
Fiat Chrysler is expected to pay nearly $650 million in emissions case

 Fiat Chrysler Automobiles has agreed to pay nearly $650 million to settle lawsuits over its use of illegal engine-control software on diesel vehicles that produced false results on emissions tests, two people briefed on the matter said Wednesday.

The Justice Department sued the company in 2017 over the Environmental Protection Agency's finding that it had used illegal software that turned off pollution controls under certain driving conditions. The E.P.A. contended that the software enabled the vehicles to pass emissions tests while allowing them to release higher levels of pollutants in normal driving.

The settlement, which is expected to be announced on Thursday, includes no admission of guilt by Fiat Chrysler or an E.P.A. finding of wrongdoing. The company will pay $305 million in penalties to the federal government and to the State of California, which also brought suit.

As part of the agreement, Fiat Chrysler will recall about 104,000 diesel-powered Ram 1500 trucks and Jeep Grand Cherokee sport utility vehicles from the 2014, 2015 and 2016 model years, a person briefed on the settlement said. The recall repair involves installing new software in the vehicles.

No hardware modifications are required, and the fix will have no effect on the vehicles' fuel economy, this person said. Once the recall is completed, Fiat Chrysler will pay owners an average of about $2,500 in compensation, this person said. Those payments could total more than $260 million.

Fiat Chrysler will also pay about $72 million in civil penalties to settle litigation brought by various states, and $6 million to settle other claims, the person said.

In October, the company set aside about $800 million to cover the cost of a settlement of the E.P.A.'s diesel-emissions suit.

Fiat Chrysler is coming off a strong year in North America. Although the company suffered a decline in profit on a global basis in the first nine months of 2018, its North American division's pretax profits rose 17 percent.

The company is benefiting from a decision in 2015 to stop selling cars and focus on trucks and S.U.V.s, which have higher profit margins. In the United States, Fiat Chrysler's new-vehicle sales rose 9 percent in 2018, while the overall market grew just 1 percent.

The federal investigation into Fiat Chrysler followed the vast diesel emissions-cheating scandal that rocked Volkswagen. But United States officials viewed the Fiat Chrysler matter as much less serious, and stopped short of accusing the company of intentionally engineering the software to cheat on emissions tests.

Volkswagen acknowledged that it had used "defeat device" software to cheat on emissions tests, and pleaded guilty to conspiracy to commit wire fraud and other charges brought by the Justice Department. The company agreed to pay $22 billion in settlements and fines, including $4.3 billion to settle a case brought by the Justice Department. It also was required to buy back 600,000 diesel vehicles from American consumers. Two Volkswagen executives pleaded guilty to criminal charges in the United States.

In Germany, the scandal resulted in the ouster of Volkswagen's chief executive, his successor and some two dozen other executives. The former chief executive of Volkswagen's Audi division was arrested last year and is awaiting trial on criminal charges.

Diesel engines were once seen as a key part of automakers' strategies for increasing fuel economy and lowering emissions of greenhouse gases. But the Volkswagen scandal and diesel-emissions investigations against other companies have all but extinguished interest and demand for diesel cars and S.U.V.s. Diesel remains a popular choice for heavy-duty pickups and larger trucks.

In place of diesel cars, automakers are scrambling to develop a variety of battery-powered vehicles. Last year, Ford Motor said it planned to spend $11 billion in a bid to introduce 16 battery-powered vehicles and 24 hybrids by 2022. Audi and Mercedes-Benz plan to add new electric models this year. Both companies had previously been big promoters of "clean diesel" technology.

Volkswagen was once one of the largest sellers of diesel cars in the United States market, and had built a loyal following for the diesel versions of the Jetta and the Beetle. But sales plunged after the diesel cheating scandal. As part of a bid to win back customers, the company plans to introduce an electric S.U.V. in 2020, followed by an electric hatchback and possibly an electric minivan.