May 25, 2017 3:55 am JST

Fiat Chrysler sued for emissions cheating, joining growing list

Tougher standards driving automakers toward electric vehicles

YUKI HANAI and YUICHIRO KANEMATSU, Nikkei staff writers

Jeep Grand Cherokee sports utility vehicles are among the 104,000 autos the U.S. says Fiat Chrysler Automobiles fitted with software designed to circumvent emissions tests. © AP

TOKYO/PALO ALTO, U.S. -- Fiat Chrysler Automobiles has found itself in a deeper legal imbroglio in the U.S. over alleged cheating on diesel emissions, which could result in the Euro-American multinational becoming the next Volkswagen. The deeper scrutiny surrounding emissions standards is also pushing global automakers to embrace electric vehicles.

The $4.6 billion question

The U.S. Justice Department filed a lawsuit Tuesday, local time, accusing Fiat Chrysler of selling about 104,000 diesel-powered vehicles in 2014 through 2016 that skirted emissions tests. In January, the Environmental Protection Agency said it believes those autos used illegal software that allows engines to emit exhaust above legally acceptable levels.

The EPA says Fiat Chrysler could face up to $4.6 billion in fines. The company rejects the allegations, asserting that any irregularities were not intentional.

Germany's Volkswagen agreed to pay a total of $4.3 billion to U.S. authorities after revelations surfaced in 2015 pointing to similar devices designed to circumvent emission tests. VW's monetary damages top $22 billion when Canadian civil settlements and other expenses are included.

Now the same charges could hit Fiat Chrysler, whose sales were flat at 111.01 billion euros ($124 billion) during the full year ended December 2016. Its net profit of 1.81 billion euros, however, is 19.5 times the income made in 2015 thanks to dwindling one-time costs, such as those associated with North American recalls.

But 80% of Fiat Chrysler's operating profit is made in the North American market, where new car sales are starting to slow. The company is also biased toward large vehicles, a category that is highly exposed to economic conditions. The suit filed by U.S. authorities is all but certain to affect sales and other figures in that key market.

Fiat Chrysler will attempt to sort things out with Washington, but history is not on its side. More than 500,000 Volkswagen vehicles in the U.S. alone were eligible for some form of restitution. Though Fiat Chrysler probably will face a smaller recall, the buybacks, compensations and legal penalties combined could wipe out 2016's profit.

Switching gears

European rivals were counting on diesel-fueled autos to compete with Japan's Toyota Motor and its hybrids, but now those bets are blowing up in their faces. Not only are investigators also probing Germany's Daimler and France's Renault for possible meddling in diesel tests, but tougher emission standards are taking root. So those automakers are turning to electric vehicles to salvage their fortunes.

The European Union is requiring new cars to emit no more than 95 grams of carbon dioxide per average kilometer by 2021. Vehicles exceeding that standard will be hit by fines correlated with exhaust levels. China is also implementing rules favoring electric vehicles.

In response, Volkswagen announced plans to have electric vehicles account for 20-25% of global unit sales in 2025. The automaker has just formed a third joint venture in China to that end, leveraging its close ties with Beijing to win an exception to the two-partner limit. Other Chinese car manufacturers and Daimler are also shifting to electric vehicles.

Japanese competitors are also feeling the pressure. For Toyota, its hybrid vehicles will not comply with the zero-emissions vehicle mandates set to be strengthened next year in California. So the company needs to make up the difference by selling enough electric vehicles and plug-in hybrids. Mazda Motor is also rolling out electric vehicles in North America in a departure from its reliance on diesel models.

Toyota Motor Corp.

Japan

Market(Ticker): TKS(7203)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 180,860.20M
Shares: 3,262.99M

Mazda Motor Corp.

Japan

Market(Ticker): TKS(7261)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 8,986.97M
Shares: 599.87M

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