US fraud prosecutors demand Ford Focus, Fiesta documents

Phoebe Wall Howard | Detroit Free Press

Show Caption Hide Caption Royal Oak man discusses problems with Ford Focus Royal Oak resident Ryan Karczewski discusses problems with his 2014 Ford Focus.

U.S. Department of Justice criminal fraud investigators have demanded documents related to the transmission used in about 2 million Ford Fiesta and Focus vehicles sold throughout this decade, the Free Press has learned.

The Free Press obtained a subpoena issued in April in Case No. 126 before a District of Columbia grand jury requesting “all documents, communications and electronically stored information” relating to the company’s actions involving the DPS6 PowerShift transmission dating to 2010. It asked for material that might show whether the company knew the transmissions were defective and couldn't be fixed or that it lied to federal safety regulators.

Ford spokesman Said Deep declined to say whether the company had received a subpoena.

More: Out of Gear: Follow the full Ford investigation

"Ford routinely cooperates with all federal, state and local regulatory and other authorities and, as has long been a matter of public record, has in particular cooperated with the National Highway Traffic Safety Administration (NHTSA) as to DPS6-related issues beginning in 2014," Deep said in a prepared statement. "Ford has taken a number of actions to enhance transmission performance and the experience of our customers including extending warranties for customers from five years/60,000 miles to seven years/100,000."

Peter Carr, spokesman for the Department of Justice, declined to comment.

What Ford knew

The inquiry focuses on the dual-clutch transmissions used in the entry-level, fuel-efficient vehicles, 1.5 million of which remain on the road. A Free Press investigation published in July found, through company documents and insider interviews, that Ford knew the transmissions were defective before putting them on the market and continued using them for years despite thousands of consumer complaints. Our "Out of Gear" investigation also found that Ford tentatively decided in 2011 to abandon the transmission but opted against that expensive change.

Many of the vehicles shudder, sometimes violently, and can shift erratically and lurch unpredictably. The transmissions are designed to default to neutral in some cases when the transmission isn't operating properly. When that happens, drivers lose acceleration wherever they are. Consumers have filed more than 4,300 complaints with federal regulators that include reports of 50 injuries, but both Ford and regulators say the vehicles do not pose an unreasonable risk and the cars have never been recalled for transmission repair.

Ford also has disclosed to federal securities regulators that it faces substantial risk from a class-action lawsuit whose $35 million settlement is under review and in about 13,000 other cases from vehicle owners who opted out of the class action.

In the subpoena obtained by the Free Press, DOJ trial attorney Blake Goebel requested all documents related to the following:

Whether the DPS6 PowerShift transmissions were defective, and whether the Ford Focus and/or Fiesta cars or vehicles incorporating those transmissions complied or did not comply with Ford’s express and/or implied warranties or other obligations under the law.

Whether Ford knew or would have known that the DPS6 PowerShift transmissions were defective and could not be repaired or made to comply with Ford’s warranty obligations and/or with the owner’s reasonable expectations.

Whether Ford informed Getrag, the supplier of the DPS6 PowerShift transmissions, that the transmissions were defective and could not be repaired; and whether Ford made monetary demands of Getrag as compensation for increased warranty costs for the transmissions.

Whether Ford and Getrag entered into any agreement — express or implied — whereby Getrag paid Ford money in compensation for Ford’s increased warranty costs for the DPS6 PowerShift transmission, including whether there was any agreement, desire or request to keep this monetary deal secret and/or nonpublic.

Whether Ford would or did affirmatively misrepresent to any third parties (e.g., consumers or governmental regulators, such as NHTSA, that there was nothing wrong with or defective about the transmissions.

Whether Ford concealed from owners and/or regulators that the transmission defect(s) and resulting “failure modes” (e.g., “unintended neutral”/”loss of motive power”) resulted in a dangerous condition(s) that could and/or did cause accidents, injuries and /or fatalities.

Whether Ford misrepresented to owners, other consumers, and/or regulators that there was nothing wrong with or defective about the DPS6 PowerShift transmissions.

Confidential documents

Ken Stern, a Novi lawyer representing 12,300 owners of Focus and Fiesta vehicles who opted out of the class-action lawsuit, is named in the subpoena obtained by the Free Press, presumably to turn over materials he obtained during litigation. He has more lawsuits pending against Ford than any lawyer in the country.

Stern did not provide the subpoena to the Free Press. He expressed surprise that the document, kept confidential for several months, had been obtained. When asked for comment, he said Wednesday, "Due to confidentiality requirements, I'm not permitted to comment."

Goebel, a trial attorney for the U.S. government who has prosecuted corporate fraud and bank scams, issued the paperwork on April 11, ordering Stern to appear at the courthouse on Constitution Avenue at 9 a.m. May 3.

Transmission maker

Getrag, central to some of the DOJ questions, is a Germany-based global supplier of transmissions now owned by Canada-based supplier Magna International after a bankruptcy. Getrag made the DPS6. In documents the Free Press obtained earlier this year, Ford blamed the supplier for the flawed design.

On March 20, 2014, senior purchasing manager Thomas Miller at Ford wrote, “Our involvement is one focused only on manufacturing of the DPS6, not the design. Getrag … owns the design and Ford is not allowed to even have the component drawings for the DPS6. As Ford believes strongly this is a design failure, Getrag should reimburse Ford for 100% … we need to be clear where the responsibility lies.”

Documents obtained by the Free Press after July publication of its Out of Gear investigation outlined Ford's strategy to win compensation from Getrag over "lack of robustness of seal design," which was causing fluid to leak, contributing to transmission problems. Ford's "recovery next steps" sought a settlement with Getrag "with a priority on cash payments, but with flexibility to incorporate other Ford wants."

These internal Ford documents — sent to the Free Press by a person who "worked for and with Ford" — included "recommended talking points" prepared for Ford's Mark Fields to use in negotiations with Getrag President Tobias Hagenmeyer. They included:

We appreciate Getrag's continued support of the work to understand the technical issues related to the DPS6 warranty.

After significant analysis, Ford has determined that we must go ahead with two customer service actions to address the seal leak concerns. The first is a proactive repair, and the second is an extension of the warranties for affected customers' vehicles.

All of our technical data showed that the failure rate would continue to increase over time.

It's also important for you to understand that Ford will not call out Getrag publicly over this concern. All of our communication will be focused directly at the individual customers. Ford will respond to the media, if asked, by emphasizing that we already have a robust fix in place and we want customers to know that we are taking extra measures to ensure their full satisfaction.

Further, given the ongoing partnership between Getrag and Ford across all parts of our business, I want to ask for your help to expedite a financial settlement. It is not my intent to negotiate with you today, but I do want you to understand the significant cost to Ford.

A 2016 DPS6 update, obtained earlier by the Free Press, noted that a “seal and clutch settlement” with Getrag involved a $50 million payment that released the supplier from claims as well as a $250 million maximum payout over 10 years related to a settlement among Ford, Getrag and another supplier. Ford also obtained from Getrag a factory in Irapuato, Mexico, as part of the deal.

Fields, a former Ford CEO, gave a deposition in DPS6 litigation this summer.

Looking back

Ford issued more than 20 technical service bulletins relating to the Focus and Fiesta models, with none of them being a “consistently reliable repair,” reported Carscoops in 2017. Many owners have told the Free Press of continuing problems despite multiple repairs.

By late 2012, Ford had sold more than half a million of the cars and complaints were pouring in.

“There is no fix at this time,” system testing engineer Tom Hamm wrote in an October 2012 email to four colleagues. “We have a task force working on the issue but they haven’t identified any fixes at this time.”

Ford had earlier warnings that the transmissions had significant problems.

On Aug. 31, 2010, six months before the 2012 Focus hit the market, product development engineer Tom Langeland emailed colleagues and supervisors describing “nasty launch judder” — intense vibration from a stop — that “did not clear up after many miles of driving.”

“We also cannot achieve a driveable calibration that will get us to production,” he wrote. “The clutch torque delivery MUST BE IMPROVED.”

In 2014, Ford extended the powertrain warranty from five years and 60,000 miles to seven years and 100,000 miles for vehicles built through mid-2013, as outlined in Fields' Getrag talking points.

In August 2019, a month after the Free Press' publication of Out of Gear, Ford offered the same warranty extension on 2014-16 Focus and 2014-15 Fiesta vehicles assembled after July 4, 2013. It also noted in August that, in addition to the clutch warranty extension, all 2011-15 Fiestas and 2012-16 Focuses are covered for 10 years and 150,000 miles for the transmission control module, whose failure can cause the cars to default to neutral.

Out of Gear: Follow the full Ford investigation

The transmissions, which boosted fuel economy to meet federal standards as gas prices spiked, were introduced in the 2011 model year Fiesta and 2012 Focus. They were used until the Focus was discontinued with the 2018 model year and until the 2019 Fiesta.

Ford has said it believed the transmissions were sound when the vehicles launched and insists the cars have always been safe. The company acknowledges that it considered changing the transmission technology at one point and says problems emerged after vehicles were on the road that were more complex and took longer to fix than it expected. Yet a Ford document obtained by the Free Press shows that customers blamed the transmissions for accidents in vehicles with less than 1,000 miles on them.

After publication of Out of Gear, three members of Congress called for NHTSA, which declined to formally investigate the transmissions in 2014, to re-examine the situation. NHTSA said in July it was studying “all available information, including consumer complaints."

On the same day in August that Ford extended the warranty on Focus and Fiesta vehicles built after mid-2013, NHTSA said that its review did not find "an unreasonable risk to safety,” the legal threshold for safety-related defect determinations under federal law.

Back in 2014, Ford approved adding a dashboard warning light to tell drivers the transmission is at risk of malfunction, a move described in company documents as something that “will more easily satisfy NHTSA’s requirements.”

While the Justice Department did not comment, a fraud investigation could center on whether Ford misled consumers into believing a warranty would cover problems the company knew could not be fixed, and/or whether Ford misled consumers by suggesting that the problems experienced were part of normal operation.

Overseas, Ford paid a fine of $10 million ($7.6 million U.S.) to the Australian government for the “unconscionable” mistreatment of consumers blamed as bad drivers when they complained of transmission issues.

“Ford knew the symptoms of the quality issues with the vehicles were experienced intermittently, but required customers to demonstrate them on demand in the presence of a dealer in order for repairs to be undertaken,” Rod Sims, Australian Competition and Consumer Commission chairman, said in April 2016.

That case involved about 10,500 customer complaints over Focus, Fiesta and some EcoSport models made from 2011-15 with DPS6 transmissions.

Contact Phoebe Wall Howard: 313-222-6512 or phoward@freepress.com. Follow her on Twitter @phoebesaid. Read more on Ford and sign up for our autos newsletter.