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Bloomberg News, Published June 05 2013

Chrysler fights recall of 2.7 million Jeep models

WASHINGTON — Chrysler's unusual decision to buck what would be one of the largest U.S. auto recalls shows how much the company has at risk in reputation, perhaps more than money.

The National Highway Traffic Safety Administration, in asking Chrysler on Tuesday to recall 2.7 million Jeep Grand Cherokee and Liberty sport-utility vehicles made over 15 model years, linked them to 51 deaths in fires after rear-end collisions.

Sergio Marchionne, chairman and chief executive officer of Chrysler and its majority owner, Italy's Fiat, said the Auburn Hills, Mich.-based automaker “stands behind the quality of its vehicles.” Chrysler in a report called the SUVs “among the safest vehicles of their era.”

Michelle Krebs, a senior analyst for auto-researcher Edmunds.com, called the reaction “highly unusual,” particularly after Toyota underwent multiple investigations and hearings after resisting recalls over unintended acceleration.

“It's unusual for a company to push back so strongly against a regulator, particularly when it comes to safety and their brands,” Mike Rozembajgier, vice president of ExpertRecall, an Indianapolis-based company that works with companies to manage product recalls.

“Companies do have conversations with NHTSA back and forth,” he said. “But it's rare to this extent where they're saying ‘We're not going to do this.’ ”

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, Mich.

“Sergio is a supreme negotiator,” Virag said. “I don't think he would be refusing to do the recall if he was not 100 percent certain that through all of the testing Chrysler has done that there is not a problem with the fuel tanks.”

Transportation Secretary Ray LaHood, who was involved in NHTSA's decision-making, told reporters Tuesday that the department will wait for Chrysler to formally respond to the agency letter before deciding on NHTSA's next move. The company has until June 18, according to the letter.

Chrysler's refusal could lead to the first recall-related hearing by the auto-safety regulator in decades and possibly a court challenge. The NHTSA letter proposes recalls for Grand Cherokees in model years 1993 to 2004 and the Liberty in model years 2002 to 2007.

“NHTSA hopes that Chrysler will reconsider its position and take action to protect its customers and the driving public,” Administrator David Strickland said in an emailed statement.

The Transportation Department has been investigating the Chrysler SUVs for more than two years. At least three children have died in fires while belted into the back seats of Grand Cherokees, said Clarence Ditlow, an auto-safety advocate who in a 2011 letter to Marchionne called them a “modern-day Pinto for soccer moms.”

About 1.5 million Ford Pintos were recalled in the late 1970s because of reports that rear-end collisions could spill gasoline and ignite fires.

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

“I've never seen a defect where kids burned to death in the back of a vehicle in child safety seats,” Ditlow, an auto- safety advocate since the 1960s, said in an interview.

“The difference with the Pinto was the Pinto wasn't a family car. It was a compact that tended to have one or two people in it,” he said. “But the Jeeps were advertised as a family vehicle, so you have people in the back seats.”

A recall may be of little safety benefit given the age of the SUVs involved, Eric Noble, president of the Car Lab, an industry consultant based in Orange, Calif., said Wednesday in an interview on Bloomberg Television.

“It's a little bit of a tempest in a teapot,” he said. “The vehicles in question are quite old. A fiery death is never a good thing, and nobody wants any to occur. But the number of vehicles is very small” in terms of fatalities relative to how many of the SUVs are on the road.

Last June, NHTSA upgraded a defect investigation into the fuel systems in as many as 5.1 million Jeep vehicles following reports of about two dozen fires. NHTSA opened its probe into the Chrysler vehicles in October 2010.

If Chrysler refuses to recall the vehicles, NHTSA “may proceed to an initial decision that these vehicles contain a safety-related defect,” a move that would involve publishing a list of alleged defects in the Federal Register and scheduling a public meeting, the agency said in its letter.

NHTSA's letter, written by Frank Borris, enforcement director of the agency's defects investigations office, included pictures of burned and burning Jeep models involved in accidents.

Chrysler said in its statement that all the vehicles under scrutiny meet or exceed federal safety standards, including those relating to fuel-system integrity. The company cooperated with NHTSA's review, providing technical information and analyses, it said.

This isn't the first time that Chrysler has resisted a NHTSA recall request. The company 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 the seat belt system anchors.

The agency challenged Chrysler in U.S. District Court and won. Chrysler appealed while beginning a recall. With John Roberts, now chief justice of the Supreme Court, as its lawyer, Chrysler won on a 1998 appeal and had the recall thrown out.