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Automobile Manufacturing: Not an Easy Business

Another week, and we are told that there is a Fiat-Chrysler precedent-setting recall announcement: the highest penalty yet imposed by the US National Highway Traffic Safety Administration (“NHTSA”) on a car manufacturer for mishandling recalls. In 2014, General Motors paid $35 million for failing to notify regulators in a timely manner and failing for a decade to recall about 2.6 million small cars with faulty ignition switches linked to at least 124 deaths. At the end of that same year, Honda Motor Co. was fined $70 million for lapses in reporting possible safety problems with its Takata airbags.

Fiat-Chrysler has now allegedly topped these with its $105 million fine plus other unprecedented penalties imposed via a consent order. These include submission to an audit by an independent monitor of the company’s recall processes for up to four years, and the obligation to repurchase many pickup and heavy-duty trucks and sport-utility vehicles, model years 2008 to 2012, for loss of vehicle control caused by suspension problems.

In the consent order, Fiat-Chrysler reportedly acknowledged lapses relating to the completion of 23 recalls affecting more than 11 million vehicles including older Jeeps with gas tanks mounted in the rear crumple zone linked to more than 50 deaths from gas tank explosions following rear-end collisions. Wire service reports note that it is unclear how the total fine breaks down in relation to each of the 23 recalls under investigation. They note, however, that the NHTSA is authorized to impose a maximum fine of $35 million for a single recall not completed in a timely manner.

The so-called ‘fix’ for the affected Jeeps is the installation of trailer hitches to mitigate the impact of rear-end collisions but government investigators have criticized the rate of these repairs as “slow and sporadic.” In general, the reports say the transgressions are threefold: “misleading and obstructing regulators; inadequate and lagging repairs; and failing to alert car owners to recall in a timely manner.” One report says that $15 million of the total fine is a deferred penalty payable if the terms of the consent order are violated going forward.

Fiat-Chrysler’s troubles may not end with this fine, however. In a lawsuit in Georgia brought by the parents of a 4-year-old boy killed in a “fiery rear-end Jeep crash” in which the jury initially awarded $150 million in damages, although the award was reduced to $40 million, the company’s request for a new trial was denied. An appeal of this ruling remains a possibility.

News reports suggest that Mr. Sergio Marchionne, the CEO of Fiat-Chrysler is openly seeking a merger based on his belief that, in general, the auto industry must consolidate to meet the challenges of electric and autonomous (self-driving) vehicle development and compliance with increasingly stringent environmental standards.

And it’s time for Fiat-Chrysler, General Motors and Ford to negotiate a new four-year labor contract with the 140,000 member-strong United Auto Workers Union. Industry commentators say that Fiat-Chrysler faces the toughest challenge of the three, because, while having added thousands of jobs during the last four years, its workers received less in profit-sharing bonuses than their counterparts at Ford and GM.

We should remember that building cars has never been an easy business. How many hundreds of automobile manufacturers started in the early 20th century and how many are still surviving?

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