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Analysts wary over FCA lawsuit but say emissions not as bad as VW

MILAN - Any potential fines Fiat Chrysler (FCA) may need to pay to settle a US civil lawsuit over diesel emissions will unlikely top $1 billion, analysts said, adding the case appeared less serious than at larger rival Volkswagen. The US government filed a civil lawsuit on Tuesday accusing FCA of illegally using software to bypass emission controls in 104,000 vehicles sold since 2014, which it said led to higher than allowable levels of nitrogen oxide (NOx) that are blamed for respiratory illnesses. FCA's shares dropped 16 percent in January when the U.S. Environmental Protection Agency (EPA) first raised the accusations, adding the carmaker could face a maximum fine of about $4.6 billion. The stock has been under pressure since. Volkswagen agreed to spend up to $25 billion in the United States to address claims from owners, environmental regulators, U.S. states and dealers. FCA, which sits on net debt of 5.1 billion euros ($5.70 billion), lacks VW's cash pile but analysts said its case looked much less severe. While VW admitted to intentionally cheating, Fiat Chrysler denies any wrongdoing. Authorities will have to prove that FCA's software constitutes a so-called "defeat device" and that it was fitted in the vehicles purposefully to bypass emission controls. Even if found guilty, the number of FCA vehicles targeted by the lawsuit is less than a fifth of those in the VW case. Applying calculations used in the German settlement, analysts estimate potential civil and criminal charges for Fiat Chrysler of around $800 million at most. Barclays has already cut its target price on the stock to take such a figure into account. Analysts also noted that FCA's vehicles are equipped with selective catalytic reduction (SCR) systems for cutting NOx emissions, so it is likely that any problem could be fixed through a software update. "Should this be the case, we estimate a total cost per vehicle of not more than around $100, i.e. around $10 million in aggregate," Evercore ISI analyst George Galliers said in a note. The estimates exclude any additional investments FCA may be asked to make in zero emissions vehicles infrastructure and awareness as was the case with VW. FCA said last week it would update the software in the vehicles in question, hoping it would alleviate the regulators' concern, but analysts said it may have been too little too late. The carmaker is also facing accusations over its diesel emissions in Europe.

Auto Mergers and Acquisitions: Suicide or salvation?

We love the Moses figure. A savior riding in from stage right with the ideas, the smarts, and the scrappiness to put things right. Alan Mullaly. Carroll Shelby. Lee Iacocca. Andrew Carnegie. Steve Jobs. Elon Musk. Bart Simpson. Sergio Marchionne does not likely view himself with Moses-like optics, but the CEO of Fiat Chrysler Automobiles recently gave a remarkable, perhaps prophetic interview with Automotive News about his interest and the inevitability of merging with a potential automotive partner like General Motors. Marchionne has been overtly public about his notion that GM must merge with FCA. For a bit of context, GM sold 9.9 million vehicles in 2014, posting $2.8 billion in net income, while FCA sold 4.75 million units and earned $2.4 billion in net income, painting a very rosy FCA earnings-to-sales picture. But that's not the entire picture. Most people in the auto industry still remember the trainwreck that was the DaimlerChrysler "merger" written in what turned out to be sand in 1998. It proved to be a master class in how not to fuse two companies, two cultures, two continents, and two management teams. Oh, it worked for the two individuals at both helms pre-merger. They got silly rich. And the industry itself was in a misty romance at the time with mergers and acquisitions. BMW bought Rolls-Royce. Volkswagen Group bought Bentley, Bugatti, and Lamborghini, putting all three brands into their rightful place in both products and positioning. No marriages there, so no false pretense. Finally, Nissan and Renault got married in 1999. A successful marriage requires several rare elements in this atmosphere of gas fumes and power lust. But a successful marriage requires several rare elements in this atmosphere of gas fumes and power lust, the principle part being honesty. Daimler and Chrysler lied to each other. The heads of each unit, the product planners, and finance all presented their then-current and long-range forecasts to each other with less-than-forthright accuracy. Daimler was the far greater equal and no one from the Chrysler side enjoyed that. The cultures were entirely different, too, and little was done to bridge that gap. Which brings me back to the present overtures by Marchionne to GM. "There are varying degrees of hugs," Marchionne stated in the Automotive News piece. "I can hug you nicely, I can hug you tightly, I can hug you like a bear, I can really hug you." Seriously?

Treasury says auto bailout tally drops to $20.3 billion

In December, the US Treasury announced that it was going to sell all of its shares in General Motors within 12 to 15 months. The first tranche of the 500-million total shares was purchased by GM, which took 200 million of them at $27.50 per share. That price represents an eight-percent premium over the market price at the time. The remaining 300 million shares will be sold "through various means in an orderly fashion."
Of the $418 billion disbursed through the Troubled Asset Relief Program (TARP), a report in Automotive News indicates that "about 93 percent" has been paid back, and the latest figures put Treasury's loss from the program overall at $55.58 billion. That's a $4.1 billion improvement on the last figure, when the expected red ink added up to $59.68 billion. The auto industry's portion of that loss is estimated to be $20.3 billion, a 16-percent drop from the earlier estimate of $24.3 billion.
The Treasury now owns 19 percent of GM, but if all goes well, there will be no more cause for anyone to utter "Government Motors" by the end of Q1 next year. A loss of some kind is still expected, however. Although GM's stock price is close to $29 at the time of this writing, that's still $4 below its IPO price and well below the $72 share price necessary for the government to come out even on its GM investment. On second thought, maybe the ribbing will continue.