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CNBC Exclusive: CNBC Transcript: Fiat Chrysler CEO Sergio Marchionne Speaks with CNBC's Phil LeBeau Today on CNBC's "Power Lunch"

WHEN: TODAY, THURSDAY, January 12, 2017

WHERE: CNBC'S "POWER LUNCH"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Fiat Chrysler CEO Sergio Marchionne on CNBC's "Power Lunch" today. Following is a link to video of the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000583646.

All references must be sourced to CNBC.

LEBEAU: THANK YOU, MELISSA. LET'S BRING IN SERGIO MARCHIONNE THE CEO OF FIAT CHRYSLER JOINING US FROM THE COMPANY'S HEADQUARTERS IN AUBURN HILLS, MICHIGAN. SERGIO, YOU'VE HEARD THE ALLEGATIONS FROM THE ENVIRONMENTAL PROTECTION AGENCY. BEFORE WE GET INTO THE DETAILS HERE, YOU'RE PRETTY UPSET THEY ARE ACCUSED YOU ESSENTIALLY OF LYING, OF CHEATING, OF RIGGING YOUR EMISSIONS FOR DIESEL VEHICLES. GIVE ME YOUR RESPONSE.

MARCHIONNE : WELL, I MEAN, WE WERE RELATIVELY CLEAR WITH THE PRESS RELEASE THAT WE ISSUED THIS MORNING. WE HAVE A NUMBER OF CONTROL STRATEGIES THAT RUN OUR ENGINES, AND THERE'S NEVER BEEN ANY INTENT IN PUTTING THE SOFTWARE IN THE VEHICLES TO DEFRAUD ANYBODY. WE THINK THAT THE SOFTWARE IS COMPLIENT WITH CURRENT LEGISLATION. WE MAY HAVE A DIFFERENCE OF OPINION AS TO WHETHER THE EPA AND CARB HAVE DIFFERENT EXPECTATIONS OF DISCLOSURE ON THOSE CALIBRATIONS, BUT THE FUNDAMENTAL DIFFERENCE IN OUR CASE AND RECENT CASES THAT THEY SETTLED HAVE TO DO WITH THE FACT THAT THESE CONTROL STRATEGIES WORK ALL THE TIME IN OUR VEHICLES. THEY DO NOT DISTINGUISH BETWEEN TEST CYCLES AND RUNNING A NORMAL RUNNING OPERATION, SO THE CASE IS FUNDAMENTALLY DIFFERENT, AND IT IS IMPORTANT FOR US TO DISTINGUISH OURSELVES FROM THE CURRENT STATE OF THE ART IN THIS AREA. I THINK WE HAVE BEEN UNNECESSARILY MALIGNED WITH A DESIRE OR A WISH OR INTENT ON OUR PART TO TRY TO DEFRAUD ANYBODY. WE HAVEN'T.

LEBEAU: AND YOU, ESSENTIALLY SAID ON THE CONFERENCE CALL, DON'T LUMP US IN WITH THE CRIMINALS, YET THE EPA SAID THEY DID NOT DISCLOSE THIS SOFTWARE TO US. DID YOU NOT DISCLOSE THIS SOFTWARE TO THE EPA?

MARCHIONNE: WE MAKE ALL DISCLOSURES, ALL THE SOFTWARE THAT GOES INTO THESE VEHICLES IS DISCLOSED. THERE'S A PART OF THE REGULATION THAT REQUIRES THE NONOPERATION OF SOME OF THE CONTROL MECHANISMS TO BE DISCLOSED AND TO BE VETTED BY THE EPA. THIS IS GOVERNED BY PRACTICE. BY HISTORICAL PRACTICES THAT HAVE BEEN IN PLACE BETWEEN US AND THE EPA OVER A NUMBER OF YEARS. WE HAVE HAD DISCUSSIONS NOW WITH THE EPA ON THOSE MATTERS SINCE SEPTEMBER OF 2015. IT'S BEEN MORE THAN A YEAR AND A HALF. WE HAVE MADE TONS OF MATERIAL AVAILABLE TO THEM. WE CONTINUE TO DISCUSS THE ISSUE, AND WE ARE IN THE PROCESS NOW PRESENTING A MORE COMPLETE SET OF CONTROL STRATEGIES THAT WILL REMEDY ALL OF THEIR CONCERNS, SO THE ISSUE COULD HAVE BEEN SETTLED AND SHOULD HAVE BEEN SETTLED, I THINK, IN MY VIEW, IN A MORE EFFICIENT WAY AND MORE BUSINESS-LIKE MANNER AS OPPOSED TO ELEVATING THIS TO SUGGESTIONS THAT WE'RE TRYING TO DEFRAUD ANYBODY.

LEBEAU: WHY ARE THEY COMING PUBLIC NOW AND FALLING JUST SHORT OF SAYING YOU HAVE DEFEAT DEVICES IN THESE VEHICLES. THEY DID NOT SAY THAT, BUT THE PRETTY MUCH PAINTED A PICTURE THAT WOULD LEAD PEOPLE TO CONCLUDE THAT.

MARCHIONNE: LOOK, THERE ARE TWO ISSUES. ONE IS THAT IF YOU HAVE MECHANISMS IN YOUR CAR THAT DETECT THE TEST CYCLE, AND THAT SYSTEM DOESN'T FUNCTION WHEN YOU ARE RUNNING THE CAR NORMALLY, THAT, TO ME, IS A CLASSIC DEFINITION OF A DEFEAT DEVICE . WHEN YOU GOT MECHANISMS IN A CAR THAT PREVENT DAMAGE FROM HAPPENING TO THE ENGINE AND THAT OPERATE UNDER VERY SPECIFIC CIRCUMSTANCES, THOSE THINGS ARE EXCEPTIONS UNDER NORMAL OPERATING CONDITIONS OF THE CAR UNER THE RULES THEY NEED TO BE DISCLOSED. THEY MAY HAVE BEEN CASES, AT LEAST IN OUR ISSUES, WHERE IN OUR CASE WHERE SOME OF THE DISCLOSURES MAY NOT HAVE BEEN AS COMPLETE AS THEY COULD HAVE BEEN. WE ARE IN THE DISCUSSIONS ON THAT ISSUE WITH THE EPA TODAY. WE SINCERELY HOPE THAT WE CAN FIND AN EQUITABLE SOLUTION BETWEEN THEIR EXPECTATIONS AND OURS. OUR SOFTWARE PACKAGE THE ONE THAT IS READY TO GO TO BE FLASHED IN ALL OF OUR VEHICLES WILL CURE ALL THEIR CONCERNS, AND IT'S -- THEY CANNOT BE CLASSIFIED AS DEFEAT DEVICES. BECAUSE WE'RE TRYING TO DEFEAT NOTHING. THESE WERE MECHANISMS THAT WERE PUT IN PLACE TO PROTECT THE ENGINE IN PARTICULAR CIRCUMSTANCES WHEN THE ENGINE WAS UNDER LOAD.

MATHISEN: IF I COULD SUM IT UP MR MARCHIONNE, IT SOUNDS LIKE YOU ARE SAYING THIS WAS A TECHNICAL MISUNDERSTANDING, AND IF I DON'T HAVE THAT RIGHT, CORRECT ME. DO YOU THINK THAT YOU WILL GET A MORE SYMPATHETIC UNDERSTANDING OF THIS MISUNDERSTANDING FROM THE NEW ADMINISTRATION?

MARCHIONNE: IT'S DIFFICULT FOR ME TO JUDGE. THE ONLY THING I DO KNOW AND WHICH IS THE REASON WHY WE GOT SOMEWHAT HYPER SENSITIVE ABOUT THE MATTER IS WE ARE DEALING WITH PEOPLE WHO WILL NOT BE HERE TO TRY TO RESOLVE THE ISSUE. WE WILL HAVE TO DEAL WITH A NEW ADMINISTRATION. WE WILL HAVE TO DEAL WITH A NUMBER OF NEW PEOPLE WHO WILL HANDLE THE CASE, AND IT'S DIFFICULT FOR ME TO TRY AND PREDICT WHAT THE OUTCOME WILL BE, BUT I THINK OUR CONSCIOUS IS COMPLETELY CLEAR. I THINK WE UNDERSTAND FULLY WHAT WE'VE DONE. WE'VE DONE ALL THE WORK THAT NEEDS TO BE DONE ON THE INSIDE TO MAKE SURE THERE'S NO MALFEASANCE INSIDE CHRYSLER. WE'VE NOT FOUND ANY INDICATION THAT ANY OF OUR PEOPLE WERE TRYING TO DEFRAUD OR TRYING TO COME UP WITH A SCHEME TO CIRCUMVENT THE REGULATIONS. IF THERE WAS A MISTAKE MADE, I THINK IT'S A MISTAKE THAT NEEDS TO BE CLEAR THROUGH NORMAL PROCESS, AND I THINK WHAT WE'VE OFFERED NOW, THE EPA AND CARB HAS A SOLUTION ON THE SOFTWARE SIDE IS GOING TO CURE ALL THE CONCERNS.

CARUSO-CABRERA: SIR, MICHELLE HERE. SPEAKING OF THE NEW ADMINISTRATION, PUTTING ASIDE THIS CASE, WHAT ABOUT EPA REQUIREMENTS AND EMISSIONS REQUIREMENTS IN GENERAL? THERE'S BEEN COMPLAINTS OVER THE YEARS THAT THEY PUSH FOR MORE AND MORE AND MORE, AND THEY ARE NOT NECESSARILY ACHIEVABLE.

MARCHIONNE: WELL, LOOK, WHEN WE AGREED TO THE CHANGES IN THE EMISSIONS STANDARDS AND THE OBJECTIVES FOR 2025 WITH PRESIDENT OBAMA, THERE WAS A VERY CLEAR ROAD MAP THAT WAS PUT IN PLACE THAT REQUIRED A MIDTERM REVIEW, WHICH SHOULD HAVE BEEN COMPLETED BY 2017 AND 18. BUT THERE SHOULD HAVE BEEN A REVIEW THAT WAS CARRIED OUT, AND THIS LAST ACTION BY THE EPA, WHICH EFFECTIVELY CONFIRMED THE 2025 STANDARDS WITH OUR CONSULTATION WITH INDUSTRY WAS INMY VIEW AN UNWARRANTED ACT. AND SO, I SINCERELY HOPE THAT WITH THE NEW ADMINISTRATION WE'LL GET A BETTER AUDIENCE TO TRY AND RESOLVE THESE ISSUES AND DETERMINE WHAT IS, IN FACT, DOABLE BY 2025.

LEBEAU: SERGIO, IT'S PHIL, ONE LAST QUESTION. DO YOU FEEL LIKE THIS IS – AT THE END OF THE DAY, A BIT OF A WITCH HUNT ON THE PART OF THE EPA? AND THOSE ARE MY WORDS, NOT THEIRS OR YOURS. BUT FROM THE SENSE THAT YOU MADE IT VERY CLEAR ON THE CONFERENCE CALL YOU'VE BEEN COMMUNICATING WITH THEM, AND NOW THEY COME OUT AND THEY SAY, YOU KNOW WHAT, WE THINK THEY ARE IN VIOLATION.

MARCHIONNE: LOOK, OBVIOUSLY, WE KNEW THAT THEY HAD CONCERNS. WE HAVE BEEN IN DIALOGUE WITH THEM NOW SINCE SEPTEMBER 2015. IT COULD HAVE EVEN BEEN EARLIER. BUT THAT'S THE BEST OF MY KNOWLEDGE, IT WAS SEPTEMBER OF '15. WHAT CAME OUT OF THE WILD BLUE WAS THE ANNOUNCEMENT THIS MORNING THAT IT WOULD ISSUE A NOTICE OF VIOLATION AND THAT WE HAVE THREE HOURS TO RESPOND. AND THAT, TO ME, GIVEN THE LEVEL OF DISCUSSIONS AND THE LEVEL OF DISCLOSURE THAT HAS BEEN MADE – I FOUND THE TIME PERIOD TOO SHORT AND IT PREVENTED ANY TYPE OF DIALOGUE FROM HAPPENING BEFORE THE NOTICE OF VIOLATION WAS ISSUED.

LEE: SIR, WHETHER IT BE THIS SPECIFIC CASE WITH THE EPA OR JUST EPA EMISSIONS STANDARDS IN GENERAL, ARE YOU SORT OF GLAD THAT YOU ANNOUNCED THE BILLION DOLLAR INVESTMENT INTO PLANTS AND JOB CREATION IN ORDER TO GAIN A LITTLE BIT – MAYBE A MORE FAVORABLE EAR FROM THIS NEW ADMINISTRATION COMING IN?

MARCHIONNE: LOOK, WE WOULD HAVE MADE THAT ANNOUNCEMENT ANYWAY. AND THIS IS PART OF OUR STRATEGIC PLAN FOR THE DEVELOPMENT OF BOTH THE RAM AND THE JEEP RAM HERE IN THE U.S., AND TO ALLOW FOR THE MANUFACTURING FOOTPRINT TO BE AVAILABLE FOR GLOBAL PENETRATION OF THESE TWO BRANDS. SO, I'M GLAD IN A SENSE THAT WE DID IT. WE WOULD HAVE DONE IT ANYWAY, BUT I THINK IT CAME IN AT THE RIGHT TIME.

LEBEAU: SERGIO, WHAT'S THE NEXT STEP?

MARCHIONNE: I THINK WE'RE GOING TO WAIT UNTIL – WE ARE GOING TO SIT DOWN WITH THE NEW ADMINISTRATION AND TRY AND HAMMER THIS OUT. OUR PEOPLE ARE GOING TO BE WITH THE PEOPLE IN CALIFORNIA ON MONDAY TO TRY AND DISCUSS THIS ISSUE, SO THE OPERATING SIDE OF THE EPA HAS BEEN FULLY COLLABORATING WITH FCA AND I THINK WE ARE IN A GOOD PLACE. I SINCERELY HOPE THAT WE CAN RESOLVE IT VERY, VERY QUICKLY AND GET CERTIFICATION UNDER 2017 DIESEL ENGINES ARE AVAILABLE TO BE INSTALLED IN BOTH THE GRAND CHEROKEE AND THE RAM 1500. IF WE CAN GET OVER THAT HUMP, THEN WE TAKE THAT SOFTWARE AND EFFECTIVELY REFLASH THE 14, 15, AND 16 CARS AND MAKE THE ISSUE GO AWAY. AND THEN THE REST OF IT REALLY BECOMES A QUESTION OF ADMINISTRATIVE COMPLIANCE WITH THE STANDARD AND WHETHER WE AGREE OR NOT AGREE THAT THERE WAS AN INFRACTION IN PLACE. BUT CERTAINLY NOT TO THE EXTENT THAT WAS PORTRAYED TODAY IN THE EPA CONFERENCE, WHICH I FOUND A BIT OVERREACHING.

CARUSO-CABRERA: SIR, THANK YOU FOR THE PATIENCE. JUST ONE MORE. YOU'RE ITALIAN, A LOT OF PEOPLE KNOW THAT. YOU'RE VERY FAMILIAR WITH VAT TAXES AND THE INTERNATIONAL TAXATION SYSTEM. I DON'T KNOW IF YOU ARE AWARE, BUT THERE'S A BIG MOVEMENT HERE WITHIN THE HOUSE GOP TO TRY TO DRAMATICALLY CHANGE CORPORATE TAXES IN AMERICA AND INSTEAD GO TO WHAT THEY ARE CALLING A CASH FLOW TAX AND BORDER ADJUSTMENT TAX. ANY OPINION ON THAT? HAVE YOU HEARD ABOUT IT? THINKING ABOUT IT?

MARCHIONNE: I'M NOT SURE I'VE HEARD ABOUT IT, AND BY THE WAY, I'M PARTIALLY ITALIAN AND I'M ALSO CANADIAN. BUT THE ISSUE IS A COMPLICATED ISSUE BECAUSE THE BORDER TAXES, I THINK, HAVE GOT SIGNIFICANT IMPLICATIONS ON THE FLOW OF GOODS OUT OF THE U.S. AND I THINK IT WILL IMPACT OUR EXPANSION STRATEGIES FOR JEEP AND RAM. I THINK ONE OF THE CORNERSTONES OF WHAT WE'VE DONE HERE IN THE LAST SEVEN YEARS WITH CHRYSLER WAS TO TRY AND TURN JEEP INTO A GLOBAL BRAND, AND WE NEED THE U.S. MANUFACTURING FOOTPRINT TO GET THAT DONE. SO I THINK WE NEED TO BE CAREFUL. I APPRECIATE THE REDUCTION IN THE CORPORATE TAX RATE, I THINK WE HAVE TO BE VERY, VERY CAREFUL THAT WE DON'T BECOME TOO INSULAR IN THE PROCESS.

LEBEAU: FIAT CHRYSLER CEO SERGIO MARCHIONNE JOINING US EXCLUSIVELY HERE ON "POWER LUNCH" FROM THE COMPANY'S HEADQUARTERS IN AUBURN HILLS MICHIGAN. SERGIO, THANK YOU VERY MUCH.

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