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Who Shall Come Next?

24 May 2017 by lberuti

FIAT ( Fiat Chrysler Automobiles ) were slapped with a Department of Justice civil lawsuit last night. After VW ( Volkswagen AG ), the Italian carmaker is on the US administration hit list. It is a consequence of the claim made in January by the Environmental Protection Agency (EPA) that the company had equipped Ram pickup trucks and Jeep Grand Cherokee sold from 2014 through 2016 with defeat devices aimed at cheating emission tests. If US officials view the FIAT matter as less serious than VW’s, the maximum EPA fine – which exclude recall costs and any customer compensation- could be $4.6Bln. Filing the suit is seen as an effort to accelerate settlement negotiations, which are now the only way for FCA to avoid a suit the outcome of which is uncertain. Using VW’s fine as a yardstick, they could end up taking a $1.6Bln hit. Their case is allegedly less serious, but considering that FCA’s net debt at the end of 2016 stood at $4.6Bln, this could be significant. Investors reacted late yesterday and marked FCA’s 5-year risk premium 13bps wider to 318bps. They pushed it another 10bps wider this morning, but there was no follow through, and it eventually closed unchanged on the day. The recent wides are proving tough to break in the current positive environment.