Cummins reached an agreement in principle with the United States and State of California to pay a $1.675-billion penalty to settle claims that it violated the Clean Air Act by installing emissions defeat devices on 630,000 model year 2013 to 2019 RAM 2500 and 3500 pickup truck engines.

The Clean Air Act requires vehicle and engine manufacturers to ensure that their products comply with applicable emission limits. Defeat devices are parts or software that bypass, defeat, or render inoperative emissions controls such as emission sensors and onboard computers. The company also allegedly installed undisclosed auxiliary emission control devices on 330,000 model year 2019 to 2023 RAM 2500 and 3500 pickup truck engines.

Cummins said that it has cooperated fully with the relevant regulators, already addressed many of the issues involved, and looks forward to obtaining certainty as it concludes this lengthy matter. Cummins conducted an internal review and worked collaboratively with the regulators for more than four years. The company says that it has seen no evidence that anyone acted in bad faith and does not admit wrongdoing.

The governmental entities involved are the US Environmental Protection Agency (EPA), the California Air Resources Board (CARB), the Environment and Natural Resources Division of the Department of Justice (DOJ), and the California Attorney General’s Office.

Cummins disclosed a review of these matters when it began in 2019 and has regularly updated its disclosures as that review progressed. The company has already recalled model year 2019 RAM 2500 and 3500 trucks and has initiated a recall of model years 2013 through 2018 RAM 2500 and 3500 trucks and previously accrued a total of $59 million for the estimated costs for executing these and other related recalls.

Cummins expects to record a charge of approximately $2.04 billion in the fourth quarter of 2023 to resolve these and other related matters involving approximately one million pick-up truck applications in the United States.

Of this amount, approximately $1.93 billion relates to payments that are expected to be made in the first half of 2024. The balance reflects the company’s best estimate of related expenses that will impact cash flow in future periods. The company says that it is in a strong financial position with existing liquidity and access to capital to satisfy obligations associated with the settlements, support ongoing operations, and execute its growth strategy.

The settlements are subject to final regulatory and judicial approvals.