Fiat Chrysler earnings fall on recall penalties

Net income at Fiat Chrysler’s U.S. operations fell 3 percent last quarter due largely to a $90 million charge to pay government penalties for mishandling recalls.

The company says it made $598 million from April to June, compared with $619 million a year ago. The decline also included a $71 million loss from paying off $2.9 billion in secured notes.

The drop came even though worldwide sales rose 5 percent to 762,000 for the quarter, including a 6 percent increase in U.S. retail sales to individual buyers.

Revenue for the quarter role nearly 11 percent to $22.6 billion, mainly because of higher global sales and prices.

Chief Financial Officer Richard Palmer said the Jeep brand had its best quarter ever with global sales up 47 percent from a year ago to 316,000. Jeep, which sells only SUVs, is benefiting from the global popularity of the higher-sitting vehicles in the past year.

The quarter’s pretax profit margin for the unit, known as FCA US LLC, were 6 percent, up from 4.8 percent a year ago. Last week the parent company, Fiat Chrysler Automobiles NV, reported that its North American pretax margin had hit 7.7 percent. Palmer said the FCA margins were lower because they included lower-profit international sales and because of the difference between U.S. and international accounting standards. Profit margins are the percentage of revenue that a company gets to keep.

The recall charge came from a consent agreement announced last month with the National Highway Traffic Safety Administration. The company was assessed a record $105 million penalty for recall problems including delays in notifying customers, distributing parts and telling NHTSA of problems. It must pay a $70 million civil fine, plus make $20 million in safety-related improvements. It would have to pay another $15 million if it violates the agreement.

The Italian-American parent company, Fiat Chrysler Automobiles NV, last week raised its outlook for the year due to strong North American sales and a European recovery.

It reported a net profit for the quarter of $364 million.