Chrysler Refuses to Recall Vehicles - Analyst Blog

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Chrysler Group LLC, majority-owned by Italy's Fiat SpA ( FIATY ), is reluctant to recall about 2.7 million units of its Jeep Grand Cherokee from 1993 through 2004 and Jeep Liberty from 2002 through 2007 model years, even when the National Highway Traffic Safety Administration (NHTSA) sent a letter asking the company for a voluntarily recall.

Chrysler denied on the ground that the letter is based on "incomplete analysis of the underlying data" and the vehicles are completely safe. The company revealed that it has met all federal safety standards when the vehicles were manufactured; as a result, they are "among the safest vehicles of their era."

NHTSA started investigating on the issue in Aug 2010 at the request of an advocacy group based in Washington, DC. The agency found that if hit from the rear, Jeeps' fuel tanks can leak fuel and cause fires if there is an ignition source.

According to NHTSA, the problem is causing due to the placement of the tanks behind the rear axle and their height above the road. At that time, the agency found 10 crashes and 13 deaths that were likely caused by the rear-end crashes involving Grand Cherokees.

Later on, NHTSA found about 32 crashes and fires in Grand Cherokees that caused 44 deaths due to the design defect. It also came to know about at least five rear crashes in Liberty models, causing seven deaths.

In fact, the agency inferred that the older Grand Cherokees and Libertys have fatal crash rates that are about twofold compared with similar vehicles, which include General Motor 's ( GM ) Chevrolet S10 Blazer, Ford Motor 's ( F ) Explorer, Toyota Motor 's ( TM ) 4Runner, Isuzu Rodeo, Isuzu Trooper, Mitsubishi Montero, Suzuki Sidekick and Suzuki XL-7.

However, Chrysler concluded that it received low number reports of rear-impact crashes over the last 30 years caused by fire or a fuel leak in the affected Jeeps. Besides, retrofitting the older Jeeps with repositioned tanks would be time consuming and costly.

Chrysler has to respond to the NHTSA letter until June 18 and the agency is waiting for the company to review their decision. The company must explain to NHTSA if it does not want to recall the vehicles.

If the agency is not satisfied, it can reinforce the request with a court order. The agency can also fine the company for recalling the vehicles very late like it did to Toyota. These are the reasons companies agree to make voluntary recalls without any delay. They also face the danger of bad publicity.

This is not the first time Chrysler refused a recall request from NHTSA. In 1996, the company refused to recall 91,000 Dodge Stratus and Chrysler Cirrus cars due to a seat belt defect, which led the agency to sue them in federal court. However, the agency lost the case against Chrysler in an appeals court in 1998.



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This article appears in: Investing , Business , Stocks

Referenced Stocks: F , FIATY , GM , TM

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