The U.S. Environmental Protection Agency filed a complaint in
the U.S. District Court for the District of Columbia against
DaimlerChrysler Corporation in December 2005 alleging defects
in catalytic converters and on-board diagnostic systems in
certain Chrysler Group vehicles, and failure to properly disclose
defects in such converters. The parties have agreed to the
terms of a consent decree in settlement of the complaint. The
settlement requires DaimlerChrysler Corporation to, among
other things, extend the warranties on catalytic converters in
certain 1996 – 2000 vehicles, and reprogram the powertrain
control modules in certain 1996 – 1998 vehicles with updated
on-board diagnostic systems calibrations. DaimlerChrysler Cor-
poration also settled a related parallel administrative proceed-
ing with the California Air Resources Board. The estimated
cost of such remedial actions and related settlement payments
is approximately $95 million.
DaimlerChrysler received a “statement of objections” from the
European Commission on April 1,1999, which alleged that the
Group violated EU competition rules by impeding cross-border
sales of Mercedes-Benz passenger cars to final customers in
the European Economic Area. In October 2001, the European
Commission found that DaimlerChrysler infringed EU compe-
tition rules and imposed a fine of approximately €72 million. On
September 15, 2005, the Court of First Instance of the Euro-
pean Court of Justice annulled the decision in part and reduced
the fine to an amount of €9.8 million. Neither party appealed
the judgment, which is now final.
More than 80 purported class action lawsuits alleging viola-
tions of antitrust law are pending against DaimlerChrysler and
several of its U.S. subsidiaries, six other motor vehicle manu-
facturers, operating subsidiaries of those companies in both the
United States and Canada, the National Automobile Dealers
Association and the Canadian Automobile Dealers Association.
Some complaints were filed in federal courts in various states
and others were filed in state courts. The complaints allege that
the defendants conspired to prevent the sale to U.S. consumers
of vehicles sold by dealers in Canada in order to maintain new
car prices at artificially high levels in the U.S. They seek treble
damages on behalf of everyone who bought or leased a new
vehicle in the U.S. since January 1, 2001. DaimlerChrysler believ-
es the complaints against it are without merit and plans to
defend itself against them vigorously.
Like other companies in the automotive industry, Daimler-
Chrysler (primarily DaimlerChrysler Corporation) have experi-
enced a growing number of lawsuits which seek compensatory
and punitive damages for illnesses alleged to have resulted
from direct and indirect exposure to asbestos used in some ve-
hicle components (principally brake pads). Typically, these suits
name many other corporate defendants and may also include
claims of exposure to a variety of non-automotive asbestos pro-
ducts. A single lawsuit may include claims by multiple plain-
tiffs alleging illness in the form of asbestosis, mesothelioma or
other cancer or illness. The number of claims in these law-
suits increased from approximately 14,000 at the end of 2001
to approximately 28,000 at the end of 2005. In the majority
of these cases, plaintiffs do not specify their alleged illness and
provide little detail about their alleged exposure to compo-
nents in DaimlerChrysler’s vehicles. Some plaintiffs do not exhib-
it current illness, but seek recovery based on potential future
illness. DaimlerChrysler believes that many of these lawsuits in-
volve unsubstantiated illnesses or assert only tenuous connec-
tions with components in its vehicles, and that there is credible
scientific evidence to support the dismissal of many of these
claims. Although DaimlerChrysler’s expenditures to date in con-
nection with such claims have not been material to its financial
condition, it is possible that the number of these lawsuits
will continue to grow, especially those alleging life-threatening
illness, and that the company could incur significant costs in
the future in resolving these lawsuits.
DaimlerChrysler Services North America LLC (“DCSNA”) settled
the two previously reported class action lawsuits alleging
racially discriminatory credit practices. The court approved set-
tlements require, among other things, training programs for
employees, consumer financial literacy programs, and commu-
nity outreach for African-Americans and Hispanics.
The Federal Republic of Germany has initiated arbitration pro-
ceedings against DaimlerChrysler Financial Services AG,
Deutsche Telekom AG and Toll Collect GbR. The statement of
claims of the Federal Republic of Germany was received in
August 2005. The Federal Republic of Germany is mainly seek-
ing damages, contractual penalties and the transfer of intellec-
tual property rights to Toll Collect GmbH. In particular, the
Federal Republic of Germany is claiming lost revenues of €3.51
billion plus interest (€236 million through July 31, 2005) for
the period September 1, 2003, through December 31, 2004, and
contractual penalties of approximately €1.65 billion through
July 31, 2005 plus interest (€107 million through July 31, 2005).
Since some of the contractual penalties, among other things, are
dependent on time and further claims for contractual penalties
have been asserted by the Federal Republic of Germany, the
amount claimed as contractual penalties may increase. Daimler-
Chrysler believes the claims of the Federal Republic of Ger-
many are without merit and intends to defend itself vigorously
against these claims.
A class action lawsuit was filed in 2002 against Mercedes-Benz
USA, LLC (“MBUSA”), and its wholly-owned subsidiary Mercedes-
Benz Manhattan, Inc., and is pending in the United States Dis-
trict Court for the District of New Jersey. The lawsuit alleges
that those companies participated in a price fixing conspiracy
among Mercedes-Benz dealers. MBUSA and Mercedes-Benz
Manhattan continue to defend themselves vigorously.
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