Chrysler Refusal on Jeeps Sets Challenge to Recall Power

June 5 (Bloomberg) -- Eric Noble, president of the Car Lab, talks about Chrysler Group LLC's decision to resist a U.S. National Highway Traffic Safety Administration's request that the automaker recall 2.7 million Jeep Grand Cherokee and Liberty sport-utility vehicles. Noble also discusses China's auto market and Ford Motor Co.'s sales in that country. He speaks with Erik Schatzker and Sara Eisen on Bloomberg Television's "Market Makers." (Source: Bloomberg)

The U.S. government’s power to force automakers to fix vehicles could be hindered if Chrysler Group LLC (F) prevails in its refusal to recall 2.7 million Jeeps linked to 51 fire deaths.

The automaker and its regulator, the U.S. National Highway Traffic Safety Administration, may be headed for a rare public hearing and ultimately into a federal court system whose top leader, U.S. Supreme Court Chief Justice John Roberts, was Chrysler’s lawyer 15 years ago when it last defeated a recall effort.

“If the agency wins, that’s going to show a new and improved agency,” Joan Claybrook, NHTSA’s administrator during President Jimmy Carter’s administration, said in an interview. “The agency has a long history of winning.”

“If they go to court and Chrysler wins, that would be very damaging to the agency. If it’s found that it overstepped its bounds or didn’t do a through investigation, other companies would be more likely to challenge recalls.”

While companies routinely negotiate with NHTSA on the timing or scope of recalls, they rarely refuse to comply. The agency in January said it influenced recalls of about 9.4 million vehicles last year, the most since 2005.

Recalls, whether influenced by NHTSA or not, last year involved about 16.2 million vehicles, compared with 15.5 million in 2011 and more than 20 million in 2010, when Toyota was fixing cars tied to reports of unintended acceleration.

Photographer: Stephen Shaver/Bloomberg

A worker dusts a Chrysler Jeep Grand Cherokee in Beijing, China, in this November 18, 2006 file photo. Close

A worker dusts a Chrysler Jeep Grand Cherokee in Beijing, China, in this November 18, 2006 file photo.

Close
Open
Photographer: Stephen Shaver/Bloomberg

A worker dusts a Chrysler Jeep Grand Cherokee in Beijing, China, in this November 18, 2006 file photo.

The proposed Jeep recall would be one of the 20 biggest in U.S. history, said Clarence Ditlow, executive director of the Center for Auto Safety, based in Washington.

Grand Cherokee

Chrysler, which is majority-owned by Fiat SpA, yesterday recalled about 630,000 newer SUVs for transmission and airbag defects while standing by its position that 2.7 million Grand Cherokees and Libertys made over 15 model years meet or exceed all U.S. safety standards.

In its recall proposal letter to Chrysler dated June 3, NHTSA said its investigation found leaks from the SUVs’ fuel tanks and fires after rear-impact collisions.

Months of negotiations preceded NHTSA’s issuance of the letter. The agency proposed recalling Grand Cherokees from model years 1993 to 2004 and the Liberty in model years 2002 from 2007 after investigating the vehicles for more than two years.

“Only if the manufacturer told the agency to in effect pound sand would they send a recall request letter,” said Allan Kam, an auto-safety consultant who retired from NHTSA as a senior enforcement attorney in 2000 after 25 years with the agency. “It is quite an affront to the agency for a manufacturer to not only refuse a recall request but to do so very publicly.”

Pinto Analogy

The Transportation Department began investigating the Chrysler SUVs following a petition from the group led by Ditlow, who in a 2011 letter to Sergio Marchionne, chief executive officer of Chrysler and Fiat, called the Grand Cherokee a “modern-day Pinto for soccer moms.”

About 1.5 million Ford Motor Co. (F) Pintos and Mercury Bobcats were recalled in the late 1970s after a series of rear-end accidents in which the fuel tanks leaked, causing fires that NHTSA linked to 27 deaths.

The regulator has twice lost in court on procedural grounds when automakers challenged recalls.

In 1988, the Detroit-based automaker then called General Motors Corp. won in U.S. appeals court over a recall related to brakes that could intermittently lock on its so-called X-Car, sold under Chevrolet, Oldsmobile, Pontiac and Buick model names. GM also avoided a recall in the 1990s of full-size pickups that had fuel tanks positioned in a way that they could catch fire in a rear-impact crash.

Chrysler Win

Also in the 1990s, the then-independent Chrysler Corp. defeated NHTSA’s attempt to recall about 91,000 Cirrus and Dodge Stratus cars from model year 1995 because of concerns about the strength of seat-belt anchors. With Roberts as its lawyer, Chrysler won a 1998 appeal, getting the recall thrown out on a finding NHTSA hadn’t given complete notice of the defects.

Chrysler, based in Auburn Hills, Michigan, has until June 18 to formally respond to NHTSA’s letter. If it stands by its refusal to recall the SUVs, the agency can schedule a hearing, invite public comment through a notice in the Federal Register, and publish a press release on its findings.

The automaker is optimistic that consumers will read the company’s research and agree that the vehicles in question are safe, Reid Bigland, Chrysler’s sales chief, told reporters yesterday.

``Our vehicles are safe and if they make an informed decision, I don’t think they’re going to have any concerns at all,'' Bigland said.

`Public Tit-for-Tat'

Discussions with NHTSA are continuing, he said.

``We’ve articulated our position in a tremendous amount of detail why we consider them to be safe,'' Bigland said. ``And that’s it. We’re not looking, I’m certainly not looking, to get into a public tit-for-tat on this issue.''

Administrator David Strickland has the agency’s final say on whether to require a recall. Karen Aldana, a spokeswoman for NHTSA, declined to comment, referring to Strickland’s statement June 4 that he “hopes that Chrysler will reconsider its position and take action to protect its customers and the driving public.”

After that, if the company still disagrees, it can take the matter to U.S. appeals court.

Delay Pays

Counting engineering, manufacturing and installation, a recall of 2.7 million vehicles would cost Chrysler at least $500 million, according to Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan.

Even if the company loses, the delay during the regulatory and legal processes would reduce the number of affected vehicles on the road and thereby reduce the recall’s cost. The oldest of the affected Jeeps are already 20 years old.

“If they can drag it out a year, a significant amount of their exposure is gone,” Kam, the former NHTSA attorney, said.

The downside for Chrysler in continuing the fight is that it would be in public, revolving around NHTSA’s letter that includes images of burned-out and burning Jeeps and recalls the Pinto-Bobcat deaths as a “well-publicized, terrible tragedy.”

“I’m not sure this ends well for Chrysler,” said David Kelly, an acting NHTSA administrator under President George W. Bush who is now a transportation safety consultant. “Witness that by the number of times this process has gone all the way through. The manufacturers know that and that’s why they don’t go down this road with the agency.”

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.