U.S. Hits GM With Max Penalty for Defect | News | HMG LLP

U.S. Hits GM With Maximum Penalty for Ignition-Switch Defect

August 31, 2017


General Motors Co. will pay a $35 million fine and admit to violations of federal vehicle safety laws as part of a deal to settle a U.S. investigation of the auto maker's delayed recalls of 2.6 million vehicles world-wide equipped with faulty ignition switches.

The fine is the largest single penalty levied by the government under the Tread Act, which requires auto makers to report safety defects to regulators within five days of their discovery, Transportation Secretary Anthony Foxx said.

"The fact is GM did not notify us in a timely manner. What GM did is break the law and failed to meet their public safety obligations," Mr. Foxx said at a news conference in Washington, D.C. "Silence can kill."

Texas attorney Bob Hilliard, who represents several families suing GM over fatal crashes linked to the defective switch, called Friday's agreement "a complete victory for GM," and criticized the U.S. auto safety regulator as a "toothless tiger."

"This $35 million agreement is pennies in a fountain," he said.

The Transportation Department is fining GM $7,000 a day for failing to meet an April 3 deadline to explain why GM delayed recalling vehicles to fix the ignition problems. The company has yet to complete that request.

Since the first ignition-switch recall in February, GM has ordered a series of safety recalls affecting nearly 13 million vehicles. GM has taken charges totaling $1.5 billion to cover the costs of the repair campaigns.

As part of the settlement, GM agreed to make "significant and wide-ranging internal changes to its review of safety-related issues in the United States," the Transportation Department said.

GM Chief Executive Mary Barra has begun overhauling the Detroit auto maker's procedures and internal organization involved in handling safety issues, and has appointed a new vice president for safety to lead that effort.

The agreement requires GM adhere to its schedule to produce enough replacement switches by Oct. 4 to repair all the affected vehicles, the DOT said. GM said it expects to meet the production deadline.

"We have learned a great deal from this recall. We will now focus on the goal of becoming an industry leader in safety," Ms. Barra said in a statement on Friday. "We will emerge from this situation a stronger company."

GM earlier said it was working with the National Highway Traffic Safety Administration to review processes and policies to avoid future recalls of this nature. The company has created a "global product integrity" unit to improve safety oversight, and is encouraging employees to report safety problems.

Mr. Foxx and NHTSA have come under fire from members of Congress for not taking tougher steps years ago to force GM to recall the vehicles with the defective switches, despite hundreds of consumer complaints and evidence from crash investigations that pointed to the defective switch as a possible cause of air bag failures. Mr. Foxx said the GM agreement "puts all manufacturers on notice that they will be held accountable if they fail to quickly report and address safety-related defects." Mr. Foxx also reiterated his support for legislation to increase maximum penalties for delaying recalls to $300 million from $35 million.

Clarence Ditlow, head of the Center for Auto Safety and a critic of GM and NHTSA's handling of the recalls, said called the fine a "slap on the wrist," and shows the need for Congress to lift the cap on Transportation department penalties. He also called on the Justice Department to seek a $1 billion fine and prosecute individuals responsible for the delayed recalls.

GM still faces a criminal investigation by the U.S. Justice Department and probes by states Attorneys General and the Securities and Exchange Commission. Friday's agreement with the Transportation Department won't affect that probe, according to a person familiar with the investigation.

The auto maker discovered as far back as 2001 that the design of ignition switches used in Chevrolet Cobalt, Saturn Ion and other compact cars built in the mid-2000s could slip out of the run position while being driven, cutting power to steering, brake assist and air bags. But the auto maker didn't start recalling vehicles equipped with the suspect switches until early this year.

Internal company documents released by congressional committees investigating the recall show that GM officials opted not to redesign the switches in 2005 because they calculated the savings on warranty costs wouldn't offset the expense of retooling the part.

GM has said it knows of 13 deaths linked to the problem. Safety advocates and plaintiffs' lawyers say the death and injury toll is higher.

The auto maker said ignition switch and cylinder production now is running seven days a week on multiple shifts, and that it and its supplier, Delphi Automotive PLC, are working to get two additional production lines up and running this summer.

"Given that the ignition switch was in very limited production for several years, GM's supplier, Delphi, increased production, pulled machinery out of storage, and found new suppliers for some of the part components," wrote Jeff Boyer, vice president of GM Global Safety on a GM blog. "We are buying new machinery and equipment to make parts quickly."

GM has said it won't respond to all of NHTSA's questions until former U.S. Attorney Anton Valukas completes an investigation of the matter on behalf of the company's management. That probe is due to wrap up by late this month or early next, GM has said. NHTSA officials have called Mr. Valukas' probe irrelevant to their investigation.

Erin McCarthy contributed to this article

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