In a significant development, Cummins Inc., the engine manufacturer based in Columbus, Indiana, has reached an agreement in principle to pay a hefty penalty of over $1.67 billion. The settlement is aimed at resolving claims made by regulators that the company unlawfully modified hundreds of thousands of pickup truck engines to evade emissions tests.

The U.S. Justice Department announced the agreement on Thursday, stating that Cummins' actions violated the federal Clear Air Act, which mandates compliance with emission limits for car and engine manufacturers.

According to the Justice Department, Cummins allegedly installed defeat devices on 630,000 Ram 2500 and 3500 pickup truck engines manufactured between 2013 and 2019. Additionally, it also installed undisclosed auxiliary emission control devices on 330,000 Ram 2500 and 3500 engines produced between 2019 and 2023.

Attorney General Merrick B. Garland highlighted the severe impact of these actions on public health and safety, stating that the defeat devices led to the production of thousands of tons of excess emissions of nitrogen oxides. Long-term exposure to these pollutants can result in respiratory issues and infections.

The $1.675 billion fine imposed on Cummins represents the largest civil penalty secured by the Justice Department under the Clear Air Act to date, and the second-largest environmental penalty ever obtained. This sends a strong message to the automotive industry regarding the consequences of cheating emissions regulations.

In response to the settlement, Cummins released a statement asserting that it does not admit any wrongdoing and claiming a lack of evidence of bad faith on the part of company employees. It emphasized its full cooperation with regulators and pointed to previous actions taken, including recalls of affected trucks.

Cummins acknowledged that it had already set aside $59 million to cover the costs of related recalls and revealed it expects to incur an additional charge of approximately $2.4 billion in the fourth quarter of 2023. This charge is intended to address these and other matters related to approximately one million pickup truck applications in the United States.

The agreement in principle reached by Cummins is with the U.S. and the State of California and is subject to final approvals. The company's stock shares saw a decline of about 3% following the announcement on Friday morning.

Cummins, which reported third-quarter net income of $656 million on revenue of $8.4 billion last month, will have to navigate the financial implications of the settlement as it seeks to restore public trust and compliance with environmental regulations in the future.