Fiat Chrysler recall settlement, buyback could prove costly

Fiat Chrysler could be required to lay out hundreds of millions of dollars to get potentially defective Ram pickups and older Jeeps off the road under a record deal with safety regulators to settle claims that the automaker mishandled nearly two dozen recalls.

The National Highway Traffic Safety Administration is requiring the company to offer to buy back certain Ram pickup trucks and Dodge and Chrysler SUVs with defective steering parts that can cause drivers to lose control. Nearly 580,000 vehicles initially were recalled in 2013, but the company would only be required to buy back a third of those because many of the pickups already have been repaired.

The Italian-American automaker also must allow owners of more than a million older Jeeps with vulnerable rear-mounted gas tanks to trade them in at above market value or give them $100 as an incentive to get a repair.

Fiat Chrysler faces a record civil fine of up to $105 million. The company’s shares dropped nearly 5 percent Monday afternoon following the weekend announcement of the deal.

The settlement is the latest sign that auto safety regulators are taking a more aggressive approach toward companies that fail to disclose defects or don’t properly conduct a recall.

“Merely identifying defects is not enough,” U.S. Transportation Secretary Anthony Foxx said Monday during a conference call with media. “Manufacturers that fail in their duty to fix these defects will pay a price.”

Nearly 1.3 million Rams, Chrysler Aspen and Dodge Durango SUVs and Dodge Dakota pickups from as far back as the 2003 model year were recalled for the steering problem in 2013. The government excluded around 700,000 of the oldest models from the buyback program because most have been repaired or are no longer on the road.

But it ordered the buyback for up to 579,000 vehicles from the 2008 through 2012 model years. Of those, around 193,000 have not gotten the recall repairs and are eligible for either a repair or a buyback, according to recall reports submitted to the government by Fiat Chrysler.

In each case, Fiat Chrysler would be required to pay the original purchase price plus 10 percent, minus a certain amount for depreciation.

The ultimate cost of the settlement depends on how many pickup and SUV owners join in.

According to Kelly Blue Book, a 2010 Dodge Ram 1500 – one of the smaller, less-expensive trucks involved in the recalls – could fetch $20,000 in a dealer trade-in, assuming the truck has 60,000 miles on it and is in “good” condition. At that rate, FCA could spend $956 million to buy back one-quarter of the vehicles at issue. The company is allowed to repair and resell the trucks it buys back.

The government knows of at least one death attributed to the steering defect.