Fiat shares crash after US allegations while EU and UK say they will probe emissions software

Fiat Chrysler's U.S.-listed shares recovered from an initial 18 percent slump to finish Thursday's session around a tenth lower in value following the surprise announcement from the U.S. government environmental agency regarding the carmaker's alleged violations of the Clean Air Act.

However, the extent of Thursday's sell-off may turn out to be unwarranted once further details emerge, suggested the auto research team at Evercore in a note to clients that afternoon. This assertion found support in initial trading on Friday morning wherein FCA's shares listed on the Milan bourse opened up more than 5 percent.

"Based on our initial understanding and what the company is telling us, it seems that the allegations and any potential remedy are not as severe as investors' first take," read the research.

Sergio Marchionne, chief executive officer of Fiat Chrysler
Alessia Pierdomenico | Bloomberg | Getty Images
Sergio Marchionne, chief executive officer of Fiat Chrysler

Yet the analysts had sympathy for traders' caution, especially when the company's net debt position stands among the highest in the industry. Evercore estimates Fiat Chrysler Automobiles' (FCA) automotive net debt would have fallen to around 4.7 billion euros ($5.0 billion) by the end of 2016.

"Given FCA's balance sheet, we can see why investors may wish to sit on the sidelines until further information and details are released by the EPA (Environmental Protection Agency), CARB (California Air Resources Board) and the company," the note stated.

Evercore's analysts also stressed that the situationas was determinedly repeated by chief executive Sergio Marchionne to various media throughout Thursday - was very different to the travails faced by Volkswagen. Importantly, FCA was not being accused of fitting an emissions defeating device as its German rival had done but rather of failing to disclose that it allegedly used software which affects emissions.

The research team says having such software is "standard practice across the industry".

Turning to potential software remedies such as an ECU/software flash which the Evercore analysts believe would likely provide a sufficient fix, the latter were relatively sanguine.

"The cost associated with this is relatively immaterial and,once more, should not be compared with costs incurred by Volkswagen," read the note.

However, details have since emerged which state that in addition to any remedies, a maximum potential fine, capped at $4.6 billion, could also be payable.

Marchionne's spirited defence of his company, the world's seventh largest automaker, included him telling reporters on Thursday his accusers within the EPA must be "smoking illegal material" if they were trying to draw parallels between the situations facing Volkswagen and FCA.

Nonetheless, the European Union (EU) said late Thursday it would look into Germany's separate allegation of hidden software on certain models sold in Europe, which are different vehicles to those involved in the EPA case. This development was followed on Friday morning by the U.K.transport ministry vowing to also seek information from the company regarding emissions-related software.

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