Fiat Chrysler under tighter scrutiny after record NHTSA penalty

WASHINGTON -- Fiat Chrysler Automobiles agreed to pay a $70 million fine, accept three years of close oversight by an independent monitor and buy back thousands of pickup trucks as part of a far-reaching consent agreement to settle a U.S. government probe into 23 safety recalls since 2009.The terms of the agreement signal an effort by National Highway Traffic Safety Administration to transform a company that it has viewed a laggard on safety issues into a champion of safety and compliance. They could also set a new bar against which other automakers are measured, magnifying the effects of the deal beyond Fiat Chrysler’s U.S. headquarters.The deal, announced Sunday evening by the U.S. Department of Transportation, requires that Fiat Chrysler overhaul its recall processes under close oversight from the NHTSA-approved monitor, or face as much as $15 million in additional penalties. It also commits the company to spending at least $20 million on a variety of outreach efforts to consumers and other manufacturers to reinforce the importance of safety compliance and boost response rates for recalls. FCA said buybacks are included in the $20 million. In addition to the buybacks, Fiat Chrysler will offer trade-in and financial incentives to owners of more than 1 million unrepaired Jeeps whose rear-mounted fuel tanks are linked to several deadly crashes. The combined sanctions amount to a $105 million civil penalty, the largest ever imposed by NHTSA.“These and other provisions of the consent order are aimed not only at improving Chrysler’s safety performance, but the entire auto industry’s performance,” NHTSA Administrator Mark Rosekind said during a Monday conference call with reporters.Message to other automakersAs part of the agreement, FCA acknowledged that it failed to provide prompt remedies in three recall campaigns and to comply with “various reporting requirements” of U.S. laws governing recalls. In a statement Sunday, the company said it accepted the penalties "with renewed resolve to improve our handling of recalls and re-establish the trust our customers place in us."The company said it was also "intent on rebuilding our relationship with NHTSA" and embracing the role of a public safety advocate.NHTSA and other government officials appeared pleased with the broad agreement and the message it will send to other automakers.“These steps reinforce our department’s message that merely identifying defects is not enough,” Transportation Secretary Anthony Foxx said in the conference call. “We launch recall efforts because we know that lives are at stake and we want the problems fixed. Manufacturers that fail in their duties to fix these defects will pay a price.”The consent agreement was signed on Friday. News reports of the deal began to appear late Saturday.The deal resolves the government's inquiry into 23 Fiat Chrysler recalls that were the subject of a rare public hearing on July 2. The independent monitor -- with broad powers to review documents and interview company officials -- could identify additional issues that require attention, according to a NHTSA official.That monitor, who will be paid for by FCA but report to NHTSA, will “assess, track and report the company's recall performance” for the next three years, part of “unprecedented” additional agency oversight of Fiat Chrysler, the Transportation Department said.Bonuses and buybacksAs part of the $20 million outreach effort, owners of more than 1 million Jeep Liberty and Grand Cherokee SUVs with rear-mounted fuel tanks linked to several deadly fires can either trade in their vehicles for $1,000 above market value, or opt to accept a $100 gift card if they come in to have a trailer hitch installed.Fiat Chrysler also agreed to buy back vehicles covered by three recalls related to defective suspension parts that could cause drivers to lose control of the vehicle. The recalls affected about 570,000 vehicles initially, most of them Ram pickups, but the buyback offer covers only those vehicles that haven’t yet been repaired, which FCA says number less than 200,000.FCA is obligated to pay a 10 percent premium over the vehicles’ purchase price, minus a “reasonable” amount for depreciation, according to the deal.Rosekind said during the call that the buybacks were necessary because Fiat Chrysler failed to provide an effective solution to the problems.“Fiat Chrysler's pattern of poor performance put millions of its customers, and the driving public, at risk,” he said in a statement. “This action will provide relief to owners of defective vehicles, will help improve recall performance throughout the auto industry, and gives Fiat Chrysler the opportunity to embrace a proactive safety culture.”Industry under scrutinyAmid a record string of recalls and high-profile safety lapses throughout the industry, NHTSA has come under fire from U.S. lawmakers and consumer advocates for failing to adequately monitor automakers and their suppliers.Under Rosekind, who took over as administrator in December, the agency has moved to crack down on automakers and taken a harder stance on longtime industry safety practices. Foxx and NHTSA officials have also called for higher fines, now capped by Congress at $35 million per offense.On Friday, NHTSA said it would launch a new investigation into Fiat Chrysler's handling of a recall of about 1.4 million vehicles for possible cybersecurity flaws following a report that hackers took remote control of a moving Jeep.After a blistering report from the Transportation Department's inspector general, the agency is also overhauling its own operations, notably defect analysis, while ratcheting up probes of automakers. It has also pressed for more cooperation from automakers.“We need a proactive safety culture in this country,” Rosekind told reporters last week at a briefing in Detroit.Fiat Chrysler becomes the third automaker since 2014 to fall under additional oversight by NHTSA because of lapses in reporting and addressing safety issues. Honda was slapped with a $70 million fine in January -- the biggest fine ever levied at the time -- for failing to disclose more than 1,700 reports of deaths, injuries and other "early warning" information to federal safety officials over more than a decade.Last year, General Motors was fined $35 million for failing to notify regulators in a timely manner of faulty ignition switches on older models that have been linked to more than 120 deaths. NHTSA recently decided to extend its oversight of GM's safety and recall practices for an additional year.About half of all U.S. auto sales now is subject to additional regulatory oversight, Bloomberg reported.Foxx said the Fiat Chrysler penalty and settlement are an outgrowth of the GM and Honda actions, and underscore the government’s intention to turn enforcement actions into initiatives that have long-lasting effects across the industry.For example, the $20 million in outreach efforts included in the agreement call on Fiat Chrysler to hold an annual industry summit with the Insurance Institute of Highway Safety or another independent safety group on vehicle crash trends and the latest in crashworthiness design, and to commission an independent study aimed at improving consumer participation in recalls.“Punishment is one aspect of what we do,” Foxx said, “but rehabilitation is what we hope lives on following these incidents.”Penalty follows hearingFCA had been in talks with NHTSA over the penalties in the weeks since July 2, when the agency held an unusual hearing into the company's recall and safety practices.At the hearing, NHTSA cited evidence that Fiat Chrysler had taken too long to launch recalls, delayed producing parts needed to repair defects, and didn't do enough to ensure that consumers were notified in a timely manner.In 2013, for example, some 1.5 million older Jeeps were recalled to install trailer hitches to protect the fuel tank in a rear-end collision. But the first run of replacement trailer hitches weren't manufactured until nearly a year later, in May 2014, prompting renewed scrutiny from the agency.As of April 30, 2015, FCA had installed trailer hitches on about 320,000 of the 1.5 million recalled Jeeps.At the hearing, Scott Kunselman, senior vice president of vehicle safety and regulatory affairs for Fiat Chrysler, acknowledged the company has fallen short in its handling of recalls and said NHTSA officials had "legitimate" concerns about the automaker's practices.David Phillips contributed to this report. CA100660727.PDFFCA-NHTSA consent orderCA100650727.PDF

Fiat Chrysler under tighter scrutiny after record NHTSA penalty

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