The Exchange

Why Chrysler Backtracked on Jeep Recalls

On the surface, it appears that Chrysler did an about-face involving safety recalls on more than 1 million Jeep SUVs. But behind the scenes, Chrysler negotiated a much better deal with the government than safety regulators asked for just two weeks ago.

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Jeep logo: Credit Reuters
In early June, the National Highway Traffic Safety Administration officially asked the No. 3 Detroit automaker to recall up to 2.7 million Jeep Grand Cherokee and Jeep Liberty SUVs and install a modification that would address concerns about fuel lines that could contribute to a fire in rear-end crashes. Chrysler surprised industry analysts by refusing to initiate a recall, which seemed to set the stage for high-profile litigation. Yet now Chrysler says it will issue a recall after all.

There are three important differences, however, between what regulators asked for two weeks ago and what Chrysler is likely to end up doing:

1. Chrysler will make no admission of a defect. The June 3, 2013, letter that NHTSA sent to Chrysler claimed that regulators had made a “tentative assessment” that the vehicles in question “contain defects related to motor vehicle safety.” In its recall agreement, however, Chrysler does not acknowledge a defect with the vehicles, which could make it harder for anybody involved in a fire or crash to sue Chrysler for damages.

“Every automaker wants to limit legal liability,” says Jack Nerad of car-research site KBB.com. “There’s a lot going on behind the scenes during recall negotiations to try to limit liability.”

NHTSA’s research linked 51 deaths since 1993 to fires in rear-impact collisions in the suspect Jeeps, a fatality rate the government said was more than twice the average for other SUVs. But Chrysler argued that the Jeeps in question met all safety standards, while pointing out that most of the fatalities and fires occurred in high-speed collisions that would have been highly destructive no matter what. The final recall will basically address the safety concern about fires without any finding of fault.

2. The recall will involve fewer vehicles than initially requested. Back in 2012, the government’s initial investigation focused on as many as 5.1 million Jeep vehicles. By early June that had narrowed to 2.7 million, and the final recall will involve only 1.56 million. Those vehicles include model year 1993-1998 Jeep Grand Cherokees and 2002-2007 Jeep Liberty SUVs. Owners will get a notice by email urging them to visit a local dealership.

The basic solution will be to install a Chrysler or Mopar trailer hitch, free of charge, on vehicles that don’t have one, which presumably will enhance structural integrity enough to mitigate concerns about fuel leaks.

In the June 3 letter, NHTSA also focused on model year 1999-2004 Grand Cherokees. Those won’t be subject to an official recall, however. Instead, they’ll be subject to a less severe customer-service action that will involve the free replacement of aftermarket hitches, on vehicles that have them, with a Chrysler or Mopar hitch.

3. Chrysler won’t develop any new components. The trailer-hitch solution allows Chrysler to use stock parts rather than crafting a whole new set of components, which can often be the costliest part of a recall. That could save Chrysler millions of dollars it needs to help develop and launch compelling new models.

Chrysler has still made an obvious concession by agreeing to recall nearly 1.6 million vehicles instead of fighting the action in court. Chrysler won a similar lawsuit in the 1990s, but it’s not in as strong a position these days. “I don’t think they anticipated the bad publicity,” says Michelle Krebs of car-research site Edmunds.com. “Chrysler doesn’t have the strength of brand that Ford (F) and Toyota (TM) do.”

It’s also possible that car shoppers heard something about a safety problem with the Jeep Grand Cherokee, and mistakenly assumed it involved the current model -- one of Chrysler’s biggest profit generators and most important vehicles -- rather than older ones. That would have made it even more urgent for Chrysler to resolve the controversy. Car buyers are usually pretty forgiving, but sometimes the slightest doubt is enough to drive them to the competition.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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