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Chrysler, 2 Executives Face Odometer Fraud Charges

June 25, 1987|RONALD J. OSTROW | Times Staff Writer

WASHINGTON — Chrysler Corp. conspired for nearly 40 years to defraud the public by selling tens of thousands of automobiles as new cars when their odometers had been disconnected and they had been driven for up to five weeks, a federal grand jury charged Wednesday.

In indicting the corporation and two executives, the grand jury said that in the 18 months ending last December alone, more than 60,000 Chrysler cars were first driven by corporate managers and then shipped to dealers without revealing the true mileage.

If convicted of the charges, the company could be fined $120 million.

A Chrysler official denounced the indictment, which was issued in St. Louis and announced in Washington, as "outrageous."

The official, Lewis H. Goldfarb, a Chrysler assistant general counsel, said that the driving was limited to overnight road tests by factory representatives. He compared the indictment to the case the government dropped last week against defense contractor General Dynamics after admitting that its charges were "wrong."

The St. Louis grand jury, however, said that in at least 40 instances, cars with disconnected odometers were damaged in accidents, sometimes severely, while being driven by Chrysler managers, but that fact was withheld from the dealers and buyers who later received them.

When asked if other U.S. auto makers are suspected of mileage misrepresentations, a government official said, "no, to the best of our knowledge." The official, who declined to be identified, said that government investigators believe other companies "had done it in the past but discontinued it long ago." The Justice Department said that the investigation of Chrysler "is continuing," which a source familiar with the case said meant that there "may well be others charged." Those under suspicion are higher up the corporate ladder than the two executives charged--Frank J. O'Reilly and Allen F. Scudder, the government source said.

O'Reilly and Scudder, who were in charge of plant and quality managers at Chrysler and Chrysler Canada Ltd. assembly plants in 1981, were charged with a single misdemeanor count of odometer fraud. Scudder has since retired, but he is presently on special assignment for Chrysler in Kenosha, Wis. O'Reilly, a Canadian citizen, manages Chrysler's Canadian operations. They face, if convicted, a penalty of up to one year in prison and fines.

16-Count Indictment

Chrysler was charged in the 16-count felony indictment with mail fraud, wire fraud and odometer fraud.

A U.S. Supreme Court ruling on Wednesday invalidating mail fraud as a charge in some cases is not expected to affect this case because buyers of the automobiles allegedly suffered losses through the scheme, since the cars were used rather than brand new. The high court ruling addressed cases in which no actual losses were sustained.

A source close to the case said that damage awards from owners' civil suits could dwarf any fine.

The grand jury alleged that the odometer tampering dates back to 1949.

In some cases, the indictment charged, Chrysler managers drove new cars to and from work and for personal trips with disconnected odometers and in other cases functioning odometers were replaced with fresh ones before delivery to dealers. Some cars were driven as many as 400 miles, the panel said.

A Justice Department official said that the alleged conspiracy came to light after several St. Louis Chrysler employees who had been pulled over for speeding told Missouri state troopers that they could not gauge their speed because their odometers had been disconnected. Speed does not register when the odometer is not working.

Chrysler Given Warning

On July 23, 1986, the indictment charged, the Missouri Department of Revenue told Chrysler to stop driving vehicles with disconnected odometers. The company responded by instructing management personnel in St. Louis not to tell police about a disconnected odometer if they were stopped in a car on which that procedure had been done, according to the grand jury.

The indictment charged that O'Reilly and Scudder on Dec. 14, 1981, sought to avoid complaints from Chrysler dealers about high mileage by directing plant managers to disconnect odometers on new vehicles that were to be driven by Chrysler and Chrysler Canada management personnel. If the odometer was left connected and registered more than 10 miles, according to their alleged instructions, the instrument was to be replaced with a new odometer.

The company also concealed accidents, the panel alleged. They included a July 22, 1986, crash in which a 1987 Plymouth Turismo being driven by Chrysler employees with its odometer disconnected hit a pocket of water, rolled over and came to rest in a ditch.

The grand jury said that the extensive damage was repaired at the company's Belvidere, Ill., assembly plant, and the car was shipped to a dealer with no mention of the incident or its true mileage.

Minor Repairs Alleged

The indictment also described instances in which vehicles' frames were bent in accidents. Chrysler was accused of making cosmetic repairs, without fixing the frames, and then delivering the cars for sale.

Chrysler, in a statement, maintained that any vehicles damaged before delivery were "fully repaired."

"No vehicle leaves an assembly plant unless it meets the company's engineering specifications and is certified as being a quality-built product to satisfy our customers' stringent appearance and mechanical standards," it said.

Chrysler said an average of only 40 miles is put on vehicles that are used in a road test program, with "a few instances" in which more than 65 miles were registered.

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