Ford Faces Lawsuit Over How it Handled Faulty Transmissions

An Australian regulator is suing Ford Motor Co. regarding a transmission that caused jerking while accelerating and excessive noise, the latest legal challenge for global auto makers stemming from safety concerns.

The Australian Competition and Consumer Commission, which filed a lawsuit Wednesday in the Federal Court of Australia, says Ford misled customers who complained about the dry-clutch PowerShift automatic transmission. The ACCC says Ford violated the Australian Consumer Law by telling customers they weren't entitled to a refund or a replacement vehicle at no cost.

The ACCC said Ford sold about 70,000 vehicles with the transmission in Australia from 2011 to 2016--including the Focus, Fiesta and EcoSport models--and that about half the vehicles had at least one repair related to the transmission. If found liable, Ford could face penalties of up to 1.1 million Australian dollars (US$870,000) per breach of the law. It would be up to the court to determine how many breaches occurred.

Ford is facing other legal action relating to the transmission. A settlement is pending in one class action filed in U.S. federal court in California, which offers customers up to $2,325 in cash, among other possible remedies. At least one class action is also pending in Australia, separate from the ACCC's lawsuit.

Ford rebutted the regulator's allegations that it purposefully denied customers their rights and indicated it would challenge them in court. The auto maker, however, acknowledged that issues have arisen in certain vehicles with the PowerShift transmission and apologized for its initial slow response to the complaints.

More recently, Ford says, it has reached out to customers who had had their transmission repaired twice or more to offer the latest updates free. Overall, more than 12,000 vehicles have had clutches upgraded to the latest specifications, Ford said.

Graeme Whickman, Ford's chief executive for Australia, said at a news conference that the Australian safety regulator, the Department of Infrastructure and Regional Development, investigated the vehicles and transmission and concluded that there are no safety concerns.

The allegations distract from what has been a profitable two years for Ford, as demand for trucks and SUVs amid low gas prices pushed U.S. auto sales to record highs. But Ford said in April that first-quarter profit fell 35% amid lower sales in China, recall costs associated with fire risks and faulty door latches, and falling interest for new cars in the U.S.

The ACCC says that from 2011 to May 2015, Ford refused to provide refunds or replacements even after vehicles had multiple repairs that didn't fix the issues. It said that in most cases, Ford provided replacement vehicles only if customers participated in a loyalty program, requiring an average payment of 7,000 Australian dollars.

The ACCC said Ford blamed the problems on customers' handling of their cars but that the company knew by October 2013 that there were problems with the transmission. That is when it started issuing technical-service bulletins to dealers concerning repair work.

Global auto makers have paid out hefty sums to settle legal claims over safety worries. General Motors Co. has reached settlements to pay more than $2 billion relating to its ignition-switch defect. In 2012, Toyota Motor Corp. agreed to pay about $1.1 billion to settle a class action about the unintended acceleration of its vehicles.

Japanese company Takata Corp. filed for bankruptcy protection in recent weeks after making faulty air bags that led to at least 16 deaths and the recall of 42 million vehicles in the U.S.

ACCC Chairman Rod Sims said the Australian lawsuit is the first brought by the regulator against an auto maker alleging breaches of Australia's new consumer law, which went into effect in 2011. Under the law, customers can ask for a replacement or refund if there is a major fault with a product.

"Some people took the car back seven times for transmission faults," Mr. Sims said. "I think most people would think that's a major fault."

Mr. Sims said other suits against auto makers are in the works.

Write to Mike Cherney at mike.cherney@wsj.com

(END) Dow Jones Newswires

July 26, 2017 03:45 ET (07:45 GMT)