Fiat Chrysler Hit With Record $105 Million Fine Over Botched Recalls

An anonymous reader writes: The U.S. National Highway Traffic Safety Administration has levied a record fine against Fiat Chrysler Automobiles to punish them for failing to adequately recall and fix defective cars. (If Fiat sounds familiar, it's the same company that issued a 1.4 million-vehicle recall on Friday over a remote hack.) The NHTSA's $105 million fine is half-again as much as the next biggest fine (given to Honda last year over faulty airbags). Fiat Chrysler "admitted to violating federal rules requiring timely recalls and notifications to vehicle owners, dealers and regulators." The company will be forced to buy back hundreds of thousands of vehicles (at the owners' discretion, of course) that have problems with the suspension that could lead to a loss of control. A million more Jeep owners will be given a chance to trade in their vehicle at a higher rate than market value because of rear-mounted gas tanks that are prone to catching fire.

Comments

Sounds impressive, but is it?

[FlyHelicopters]

Ok, so $105 Million sounds like a lot... and of course it isn't chump change...

But they just issued a recall of 1.4 million vehicles. So $105 Million works out to $75 per vehicle.

I suspect the cost of doing the recall on each vehicle is more than $75.

Frankly, that is less per vehicle than you pay in documentation fees when you buy it (at least here, we pay about $150 for that).

This is a trivial amount of money if the point is to punish a company that has over $22 billion in cash on hand and a profit of $4.1 billion in 2014.

http://www.autonews.com/articl....

They'll pay it and move on, nothing will change. Fine them a billion dollars and then it would actually be real money.

Re:Sounds impressive, but is it?

[GigaplexNZ]

The $105 million fine is not for the 1.4 million vehicles recalled due to the remote hack. The fine is for a separate set of issues on which recalls weren't properly done. The $105 million fine also isn't the end of the punishment, they have to also purchase back affected vehicles from consenting owners.

Re:Sounds impressive, but is it?

[Dutch Gun]

You're dividing the fine by the number of recalls, but that makes no sense. The company is already being penalized by the cost of the recalls, so I think you'd need to *add* that to the fine.

The agency said the civil penalty was broken down into a cash penalty of $70 million, and an agreement that Fiat Chrysler would spend at least $20 million on meeting performance requirements detailed in the consent order. An additional penalty of $15 million will be assessed on the company if an independent monitor, who has yet to be announced, discovers further violations of safety laws or the consent order.

Under the order, Fiat Chrysler is required to buy back as many as 500,000 vehicles with defective suspensions that can cause drivers to lose control. Also, owners of more than one million Jeeps with rear-mounted gas tanks that are prone to fires will be given an opportunity to trade in their vehicles at rates above market value.

All in all, this may end up costing them well over a billion dollars, especially if a significant number of people take them up on that buy-back offer.

Re:Sounds impressive, but is it?

[mjwx]

The thing that's going to hurt them is the fact that they'll be forced to buy back hundreds of thousands of Jeeps if the owner chooses.

I suspect quite a few of them will chose to do just that, everyone I know who's owned a Jeep will rabidly warn you off them.

Re:Sounds impressive, but is it?

[plopez]

That depends on the person's ability to pay. As it is paying for the house either directly or via increased insurance costs may be enough punishment.

Re:Sounds impressive, but is it?

[Grishnakh]

Did they direct the Engineers to design faulty suspension?

Management is *always* at fault, any time there's a problem. That's why they're called "management"; if they can't properly manage, they should get another job, like janitorial work. Engineers are employees, and just do what they're told, under threat of losing their job. So yes, management did direct the engineers to design a faulty suspension, one way or another, either by demanding that it be cheap, that it be done too quickly, that important analysis steps be skipped in the interest of time and cost, that safety testing not be done because of time and cost, etc.

The final quality of the product is up to management, whether it's suspension safety or wireless security. It's their job to make sure the engineering is done properly, and if they're not competent to judge that (and their employees aren't either), it's their job to hire consultants to help them with it.

Not with Asymmetric Information

[BBCWatcher]

Asymmetric information is a classic market failure, and automotive engineering is full of asymmetric information. Moreover, there are externalities, another classic market failure. Your Jeep's loss of control can cause my Chevrolet's trip into a brick wall, for example. Your Jeep's unregulated tailpipe emissions cause smog. Markets don't always (or even frequently) work well. But if you disagree, there are a few countries that offer unregulated free markets. I suggest moving to Somalia if you're an enthusiastic fan of free markets.

Re:If your company has been bought by Fiat...

[Anonymous Coward]

Recalls, according to TFA, are for models from 2003 to 2012. Chrysler acquisition started in 2009, but was completed only in 2014. Just to have our facts right.

Disclaimer: I'm Italian (near Turin, too). Jeep and RAM models where never designed here. Other (even worse) cars, yes, but not those.

And this is why I dont have a 500 abarth.

[Lumpy]

I was going to buy one, but after looking at owner forums and discovering the problems and horrible service that most people are getting I ran away.

I really like the idea of a small sporty car, and I really wanted one, but not if Fiat cant figure out that you have to bend over backwards for customers and make sure they are happy. Apologize while you fix your screwups and do not try and push back fixing them.

I do give honda plusses there. Recalls are done fast and mostly right. Except the pain recalls. Honda has the crappiest paint in the entire automotive industry, and the recalls are repainting with the same low grade crap that will fail in another 5 years.

Re:Ever heard of the FREE MARKET?

[tompaulco]

Undoubtedly, the free market will ultimately decide these things. However, I'd prefer that someone I care about NOT be the collateral damage that helps determine this. Many corporations lack values beyond profits

If they were truly motivated by profits, they would make a safe product. A safe product does not result in hundreds of millions of dollars in lawsuits over wrongful deaths.
Unfortunately, they are not JUST motivated by profits, but by profits THIS QUARTER. Who cares what happens the quarter after that. Nevermind that the guy in charge two quarters ago had the same mentality and now there is probably a sword of Damocles hovering above somewhere. We can't even really blame the company for this attitude. It is the company's investors, aka the American public, that demand profits every quarter at the expense of the future. America used to invest their money for long term growth, and this ultimately fed the growth of technology from the 50s through the 70s, but then Americans turned into Traders instead of Investors, and by demanding short term growth, we cripple, if not kill, long term growth. It has resulted in companies having to make poor decisions like eliminating research, outsourcing work to other countries, where it will be performed more cheaply this quarter, but result in huge maintenance costs due to poor quality in the next quarter, and so on and so forth.
To change this attitude, the majority of American public has to change their mindset about investing. We have to decide that we would rather have our money multiply by 10 over a 10 year period, than go up by half a percent this quarter. That a bird in the hand is not necessarily worth more than 1000 in the bush. That "me, me me, now, now now" is not a sustainable or desirable attitude.

Chrysler is propping up Fiat currently

[sjbe]

Chrysler didn't manage to get Daimler bankrupt, perhaps it can destroy another europan company?

You are aware that Chrysler's profits are actually propping up Fiat at the moment right? Fiat got control of Chrysler in a sweetheart deal. If they screw it up then the fault is on Fiat.

Oh, and Daimler's problems were because Daimler bungled the acquisition and completely disregarded the importance of culture. They never seriously tried to make it a unified company and basically drove Chrysler into the ground. The German management completely screwed up the Chrysler brand. That was a European company failing to understand the US market and US corporate culture. Fiat seems to be doing a better job of it but only time will tell for certain.

Re:Ever heard of the FREE MARKET?

[plopez]

"If they were truly motivated by profits, they would make a safe product."

In the real world corporations and the rich have always been happy to trade lives for profits or quarterly bonuses; hence we have FTC, FDA, OSHA, MSHA, FRRC, EPA, as well as state level agencies. See also the recent BP oil spill, the Piper Alpha disaster, salmonella outbreaks, and a host of others.