Chrysler Stock: This Scandal Just Slashed FCAU Stock

Chrysler World HeadquartersFCAU Stock Is in Serious Trouble 

Fiat Chrysler Automobiles NV (NYSE:FCAU) will face the wrath of the U.S. Environmental Protection Agency (EPA), which has accused the company of using software that allowed excess diesel emissions in over 100,000 U.S. trucks and SUVs sold since 2014. FCAU stock dropped over 12% as news broke of the impending accusations.

The EPA’s case revolves around what it believes to be an issue with the auxiliary emissions control software in Chrysler’s cars. The agency stated that the software had been created in such a way as to allow the vehicles to generate excess pollution thereby breaking the Clean Air Act. (Source: “Fiat Chrysler Accused by EPA of Emissions Cheat; Shares Fall,” Bloomberg, January 12, 2017.) 

According to reports from an undisclosed source in communication with Reuters, Chrysler does not agree with the EPA’s assessment. Which makes sense, seeing as how FCAU stock took quite the shave following the news breaking. (Source: “Exclusive: EPA to accuse Fiat Chrysler of excess diesel emissions – sources,” Reuters, January 12, 2017.)

It is not illegal for an automaker to use an auxiliary emissions control device in limited circumstances, such as to prevent engine damage, but it must be declared to regulators.

This comes on the heels of month-long delays in Chrysler’s 2017 diesel vehicles being approved by the EPA for sales in the Unites States. 2016 models, however, have been available to consumers.

And the cost for Chrysler and FCAU stock could be dire: the company could face fines of up to $37,500 per vehicle if it is proven that it violated emissions rules. Keep in mind that the EPA is investigating the 104,000 models sold between 2014 and 2016, allowing for them to issue an extraordinarily large ticket for running this legal red light.

FCAU stock’s current predicament is being compared to Volkswagen AG‘s (ETR:VOW) similar investigation, which ended up with VW agreeing to pay out $4.3 billion in criminal and civil fines after the company was charged with lying about its emissions rates on its vehicles.
“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 in the air we breathe,” said Cynthia Giles, assistant administrator for the EPA’s Office of Enforcement and Compliance Assurance, in the agency’s statement. “We continue to investigate the nature and impact of these devices.” (Source: “EPA Notifies Fiat Chrysler of Clean Air Act Violations,” United States Environmental Protection Agency, January 12, 2017.)
Chrysler, for its part, denied that there is any wrongdoing on its part regarding the emissions test. The company said in a statement that it intends to “work with the incoming administration to present its case and resolve this matter fairly and equitably.”

Chrysler then claimed that its diesel-powered vehicles met “all applicable regulatory requirements.”

This is a developing story that any auto investor will want to follow very, very closely.