EPA accuses Fiat Chrysler of excess diesel emissions

The U.S. Environmental Protection Agency on Thursday accused Fiat Chrysler Automobiles NV of illegally using hidden software that allowed significant excess diesel emissions, the result of a probe that stemmed from regulators' investigation of rival Volkswagen AG.

The EPA action affects 104,000 U.S. trucks and SUVs sold since 2014, about one-sixth the number of vehicles than in the Volkswagen case. The maximum fine is about $4.6 billion.

The EPA and California Air Resources Board told Fiat Chrysler it believes its undeclared auxiliary emissions control software allowed vehicles to generate excess pollution in violation of the law.

Fiat Chrysler CEO Sergio Marchionne denied the company was cheating and has been in talks with EPA and made significant disclosures of documents.

"We have done nothing that is illegal," he said. "There was never any intent of creating conditions that were designed to defeat the testing process. This is absolute nonsense."

The company's U.S. arm, FCA US, said in a statement it is "disappointed" with the EPA assertions. It said its "diesel-powered vehicles meet all applicable regulatory requirements."

The EPA has reviews ongoing of other automakers' emissions systems, but it is not clear if they have found any additional wrongdoing. In April, Daimler AG said the U.S. Justice Department had asked the carmaker to investigate its emissions certification process for vehicles including its Mercedes brand.

Regulators said FCA failed to disclose engine management software in 104,000 U.S. 2014-2016 Jeep Grand Cherokees and Dodge Ram 1500 trucks with 3.0-liter diesel engines. The undisclosed software results in increased emissions of nitrogen oxides (NOx). EPA is still investigating if the software constitutes a "defeat device."

"Failing to disclose software that affects emissions in a vehicle's engine is a serious violation of the law, which can result in harmful pollution," said Cynthia Giles, an EPA official, in a statement.

FCA said it will prove to the EPA that its emissions controls are justified and not 'defeat devices' under applicable regulations.

The EPA said it has found at least eight undisclosed pieces of software that can alter how a vehicle emits air pollution.

The EPA said Fiat Chrysler had recalled vehicles for one of the undisclosed pieces of software and had only used it in 2014 models.

By contesting the charge, FCA will push the case into the administration of President-elect Donald Trump. It is not clear how Trump's EPA will handle this or similar issues.

Trump, who takes office Jan. 20, has nominated Oklahoma Attorney General Scott Pruitt, a critic of federal environmental regulation, to lead the EPA.

"FCA US intends to work with the incoming administration to present its case and resolve this matter fairly and equitably," the company said.

SHARES PLUNGE

FCA's Milan-listed shares closed down 16 percent, weighing on the auto sector and wider European stock markets.

U.S.-listed shares were temporarily halted, then reopened and were last down 12 percent.

The EPA announcement comes amid rising scrutiny of automakers after Volkswagen AG admitted to cheating diesel emissions tests in 580,000 U.S. vehicles.

The EPA has for months declined to certify Fiat Chrysler's 2017 diesel vehicles for sale in the United States, but the automaker has continued to sell 2016 diesel models. Marchionne said they will not stop selling the new 2016 models in dealer showrooms.

In 2015, EPA said it would review all U.S. diesel vehicles following an admission from Volkswagen that it installed software in cars allowing them to emit up to 40 times legally permissible level of pollution.

On Wednesday, VW agreed to pay $4.3 billion in criminal and civil fines and plead guilty to three felonies for misleading regulators and selling polluting vehicles.

The EPA has extensively investigated the vehicles and Fiat Chrysler has turned over significant documents as part of the probe, two people briefed on the matter said.

Fiat Chrysler could face fines of $44,539 per vehicle if it is proven that it violated emissions rules.

European regulators have also raised questions about Fiat Chrysler diesels.

Last fall, Germany wrote a letter to the European Commission accusing FCA of using an illegal device to switch off exhaust treatment systems in diesel engines in Fiat and Jeep vehicles sold in Europe.

An assembly line with 2014 Ram 1500 pickup trucks is seen at the Warren Truck Plant in Warren, Michigan, in this file photo taken September 25, 2014. PHOTO: REBECCA COOK/REUTERS


EPA: Fiat Chrysler Used Emissions-Cheating Software

U.S. regulators accused Fiat Chrysler Automobiles NV of using software on its diesel-powered Jeeps Cherokees and Ram pickups that allowed them to spew illegal amounts of pollution into the air, the latest broadside from the government over emission standards.

The Environmental Protection Agency, with little more than a week before President Barack Obama leaves office, delivered a violation notice to Fiat Chrysler accusing it of using illegal software in 104,000 vehicles. The accusation could cost the company $4.63 billion in fines, the EPA has estimated.

Officials stopped short of saying Fiat Chrysler’s software was designed to cheat emissions tests. They said they were continuing to investigate why the car maker failed to disclose the software and whether it was intended to fool regulators.

The agency targeted model years ranging between 2014 and 2016, and sidelined production of similarly-equipped 2017 model-year vehicles. It said the vehicles are safe and legal for owners to drive and not currently subject to any recall.

Shares of the auto maker were down 10% as of 4 p.m. trading on Thursday.

The allegations, coming on the heels of criminal sanctions against Volkswagen AG, could undermine Fiat Chrysler’s attempts to revive its image among car buyers after a series of regulatory lapses and recover financially after emerging from a 2009 bankruptcy filing.

Car makers already are under pressure from President-elect Donald Trump over ​producing vehicles in Mexico, reigniting worries about government meddling that emerged during the Obama administration’s bailout of Detroit auto makers.

Fiat Chrysler’s chief executive denied the car maker subverted emissions rules or violated regulations, saying the dispute involved a difference of opinion with the EPA about the calibration of its vehicles’ emission-control devices.

“We have done nothing, in our view, that is illegal,” CEO Sergio Marchionne said on a conference call. The characteristically blunt executive accused regulators of “grandstanding” and trying to “lynch companies” over differences of opinion.

He said he found the timing so close to the end of Mr. Obama’s tenure odd. “It’s unadulterated hogwash,” he said of the threat of a potential several-billion-dollar fine.

Fiat Chrysler said it would survive any fine resulting from the investigation, but such a financial burden could wipe out several years’ worth of profits and challenge its ability to meet debt obligations. Potential fines are nearly equal the company’s cumulative earnings over the past four years.

The auto maker’s net debt load equaled €6.5 billion euros ($6.9 billion) as of the end of September. London-based brokerage Evercore ISI estimates the debt declined to €4.7 billion at the end of 2016.

Mr. Marchionne has worked to revive the American arm of the Italian-U.S. auto maker targeted by the EPA, investing in truck production and planning to pay off burdensome debts.

Mr. Marchionne said he hopes to resolve the emissions issue with the incoming administration, which has expressed a more pro-business view on regulations. Mr. Trump recently praised the company’s announcement that it is investing $1 billion in two U.S. factories, raising hopes Detroit car makers can work with the new administration.

Republicans on Capitol Hill, while expressing concern, signaled skepticism about the EPA’s allegations ahead of political leadership changes. “There is much we do not know about the details of this investigation,” said Tim Murphy (R., Pa.) and John Shimkus (R., Ill.), who head separate House Energy and Commerce subcommittees, in a joint statement. “It is important that we develop a better understanding about the facts of this case.”


The EPA’s move came a day after six current and former Volkswagen AG executives were criminally charged in the German auto giant’s long-running emissions cheating on nearly 600,000 diesel-powered vehicles in the U.S.

Volkswagen separately pleaded guilty to criminal wrongdoing and agreed to pay $4.3 billion in penalties stemming from the deception, which involved installing so-called defeat-device software on cars that allowed them to pollute less during government emissions tests than on the road. That was on top of up to $17.5 billion Volkswagen agreed to pay in previous civil settlements.

“This is a clear and serious violation of the Clean Air Act,” said EPA Assistant Administrator Cynthia Giles of the allegations against Fiat Chrysler, adding the auto maker failed to disclose eight so-called auxiliary emission-control devices on the 3.0-liter diesel engine-powered vehicles when getting them certified. “AECDs that are not disclosed are illegal.”

Officials accused Fiat Chrysler of illegal activity and said it could cost the company $44,539 in fines for each affected vehicle.


EPA accuses Fiat Chrysler of cheating emissions laws

U.S. regulators accused Fiat Chrysler Automobiles of violating emissions standards in more than 100,000 diesel vehicles, spawning concerns that the company could become ensnared in a scandal like the one that engulfed Volkswagen Group.

The Environmental Protection Agency said Thursday that Fiat Chrysler illegally installed software on about 104,000 pickups and sport-utility vehicles that spewed harmful pollutants while failing to disclose the technology.

The allegations involve the 2014, 2015 and 2016 Jeep Grand Cherokee and light-duty Ram 1500 pickup trucks with 3-liter diesel engines.

The EPA said the automaker installed eight different undisclosed software programs on the vehicles, collectively causing them to spew harmful nitrous oxide emissions, which can exacerbate respiratory conditions.

"This is a clear and serious violation of the Clean Air Act," said Cynthia Giles, assistant administrator for the EPA’s Office of Enforcement and Compliance Assurance. "There is no doubt they are contributing to illegal pollution."

Fiat Chrysler CEO Sergio Marchionne blasted the EPA in a quickly arranged media call, saying he was offended by the agency's "incredibly belligerent" attacks on the auto industry. He said his company had done nothing illegally, and to try to dispel comparisons to Volkswagen's crisis.

"There is nothing in common between the VW reality and what we are describing here," he said. It's "absolute nonsense" to suggest so, he said, and anyone who disagreed with him is "smoking illegal material." Marchionne insisted that Fiat Chrysler has been forthright.

"We're trying to do an honest job here. We're not trying to break the bloody law," he told reporters.

Marchionne rejected the suggestion that rogue employees could have schemed to violate EPA laws. "If I found a guy like that, I would have hung them on a door," he said.

Fiat Chrysler (FCAU)  shares trading on the New York Stock Exchange were down about 9% after initially tumbling 14% on the news as investors fretted about the financial implications.

New York Attorney General Eric Schneiderman said his office would investigate Fiat Chrysler. Marcionne said he believes the U.S. Justice Department is assisting the EPA with its investigation.

Several analysts said the company's sin may have been solely of disclosure, not an intentionally deceptive act like that at VW.

"Software which adjusts the emissions of an engine is standard practice across the industry," Evercore ISI analyst Arndt Ellinghorst said in a note to investors. "It is the failure to disclose which seems to be the primary cause of concern at the EPA."

The EPA has the authority to fine automakers up to $44,539 per vehicle for the worst violations of the Clean Air Act. The agency threatened possible fines Thursday if it determines that the software installed on the vehicles qualifies as illegal "defeat devices" under U.S. laws.

Kelley Blue Book analyst Rebecca Lindland said there was no indication that Fiat Chrysler intentionally cheated.

"They're not meeting the standards, but right now, it doesn't appear to be the same type of deliberate act that Volkswagen admitted to," she said.

Lindland said the mistake might have been a failure to mention the technology when requesting EPA certification to sell the vehicles.

"It's like bringing a calculator to your math test — you're allowed to bring it, and it's one thing to have it on your desk, but it's another thing to have it in your lap," she said.

Fiat Chrysler said in a statement that it offered to the EPA to develop software fixes to "further improve emissions performance" because it wants to "resolve this matter fairly and equitably."

The vehicles were programmed with software that violated standards and was not disclosed to the EPA, Giles said. In lab testing, the vehicles met standards, but at high speeds and in extended driving, they violate regulations, the EPA's Giles said.

"That means that the vehicles were sold illegally," she said.

The EPA said it discovered the alleged violations after expanding its testing of on-road vehicle performance following the Volkswagen scandal.

Volkswagen admitted to cheating emissions laws on more than half a million vehicles and has agreed to criminal and civil settlements totaling nearly $22 billion. Six VW executives were charged Wednesday with allegedly weaving a conspiracy to dodge regulations while the company pleaded guilty to similar charges on a corporate level.

In Volkswagen's case, vehicles spewed NOx emissions at rates up to 40 times the U.S. standard. Giles declined to provide a comparable assessment for Fiat Chrysler.

Marchionne sought to distance Fiat Chrysler from VW.

"To be perfectly honest, I think it's being blown out of proportion," he said. "I find this to be a bizarre characterization of FCA's activities, and we will defend our behavior."

Unlike VW, the EPA has not ordered Fiat Chrysler to halt sales of diesel vehicles accused of violations. Marchionne said he would not stop sales proactively.

It's not unusual for Marchionne to take a combative stance against a federal regulatory agency. Marchionne pushed back against the National Highway Traffic Safety Administration in 2013 when the agency initially recommended a recall of 2.7 million Jeep SUVs for potentially dangerous rear-mounted fuel tanks.

Eventually, the agency agreed to allow FCA to reduce the recall to include 1.56 million Jeep Grand Cherokees for model years 1993 to 2004 and the Jeep Liberty model years 2002 to 2007.

The following year, the NHTSA was again critical of the automaker for the slow repair rate of those Jeeps.

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