Why Chrysler decided to fight NHTSA

Chrysler Group's decision to reject a recall request for 2.7 million aging Jeep SUVs caught the automotive industry -- and the media -- by surprise Tuesday.

It's a rare event when an automaker says no to the National Highway Traffic Safety Administration, as well it should be.

But lost amid the drama of a national media maelstrom of conflict between the feds and a domestic automaker is the central question: Why is this happening?

Is Chrysler really raising its middle finger toward regulators in Washington? Or worse, is the automaker really saying to the current owners of 1993-2004 Jeep Grand Cherokees or 2002-2007 Libertys, "Good luck with that?" Or is it trying to hold onto hard-won profits as it prepares to merge with majority owner Fiat S.p.A.?

Maybe I'm misreading the tea leaves or being naive, but I don't think so. I think Chrysler's management is a lot smarter than that.

The central points of Chrysler's argument against a recall in its white paper seem three-fold:

  • NHTSA isn't accusing Chrysler of a defect. It is accusing these vehicles of being involved in a number of fatal fires and saying that the location of the gas tanks might be a factor.
  • Chrysler's study of NHTSA's database shows the Jeeps are less likely to be involved in a fire than several other comparable vehicles from the same period that aren't under investigation.
  • The Jeeps' design -- including its rear-mounted fuel tank -- was approved and exceeded the standards in place at the time of their manufacture. If automakers are forced to retroactively upfit their aging fleet to meet evolving safety standards, that is the start of a slippery regulatory slope that does not have a happy ending for the industry.

One thing Chrysler can not do is dump this as a liability on the old pre-bankruptcy Chrysler, known legally as "Old Carco." As part of its organization as Chrysler Group in June 2009, the automaker accepted responsibility for vehicles made by its previous corporate entities.

This conflict between Chrysler and NHTSA is real, and the stakes are incredibly high, especially for Chrysler and its dealers.

During the last three years, Chrysler's remarkable sales run and improved lineup have done more than improve the automaker's bottom line. They've also changed Chrysler's story.

Its 2009 bankruptcy doesn't seemed particularly relevant in an era when profits and products are good. Even the story of its turnaround under Fiat seems turned around when Chrysler's profits keep its parent above water in the morass of Europe's economy.

The easy play in this conflict with NHTSA would have been to bite the bullet, do the recall, and live with the consequences. Saying no was definitely the harder choice, the one with the much bigger risk to both reputation and profits.

I just hope -- for the sake of everyone whose livelihoods are tied to Chrysler -- that it turns out to be the right choice.

You can reach Larry P. Vellequette at lvellequette@crain.com -- Follow Larry P. on Twitter: @LarryVellequett

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