Cummins Expected to take $2 Billion Hit from Emission Violation Claims Settlement

Truck engine manufacturer Cummins has reached a preliminary agreement to pay a $1.675 billion fine, marking the largest-ever civil penalty for a Clean Air Act violation, according to the U.S. Justice Department. The penalty stems from allegations that Cummins installed “defeat devices” on hundreds of thousands of engines, allowing them to emit excess pollution by bypassing or disabling emissions controls such as sensors and onboard computers.

The Department claims that Cummins utilized these defeat devices on 630,000 2013 to 2019 RAM 2500 and 3500 pickup truck engines, as well as undisclosed auxiliary emission control devices on 330,000 2019 to 2023 RAM 2500 and 3500 pickup truck engines. These devices were allegedly employed to deceive emissions control requirements.

U.S. Attorney General Merrick Garland noted that preliminary estimates indicate these defeat devices may have caused Cummins engines to produce thousands of tons of excess nitrogen oxides emissions, making it the second-largest environmental penalty deal ever reached.

EPA Administrator Michael Regan emphasized the impact on vulnerable communities residing near highways where harmful emissions are concentrated, stating that the agreement is crucial for advancing environmental justice goals.

Cummins expects to incur a nearly $2.04 billion charge in the fourth quarter to settle regulatory claims related to approximately one million engines from the Justice Department and California Air Resources Board. The company, however, maintains that it has seen no evidence of bad faith and does not admit wrongdoing.

The settlement, subject to court approval, is expected to be made public next month. Cummins mentioned that the 960,000 affected vehicles have been recalled, and emissions control software will be updated.

Cummins initially announced an internal review of its emissions certification process and compliance in April 2019. The company had also disclosed that U.S. regulators were scrutinizing Nissan Titan trucks from the 2016 to 2019 model years and would recall the trucks after developing a new software calibration and hardware fix.

Despite the significant financial charge, analysts believe it is not expected to impact Cummins’ normal business operations. Cummins shares were reported to be down 2.3% in early afternoon trading to $238.47.

This case follows other high-profile emissions-related settlements, including Fiat Chrysler Automobiles pleading guilty in August 2022 and paying nearly $300 million to resolve a U.S. Justice Department diesel-emissions fraud probe. Volkswagen had previously paid $1.45 billion in U.S. civil penalties in 2017 after admitting to cheating emissions tests in 2015, using defeat devices in 11 million vehicles worldwide. Volkswagen’s total settlements for U.S. civil and criminal actions related to the emissions scandal exceeded $20 billion.

Source: Reuters