GM Will Pay More than $35 Million over its Delayed Recall

On Friday, General Motors (GM) agreed to pay a $35 million fine to settle a federal probe into the decade-long delay of its ignition switch recall, federal safety regulators announced.

GM had already admitted that its employees knew of problems with the faulty ignition switches as early as 2004. The flaw caused some of their cars to shut off while driving, disabling airbags, anti-lock brakes and power steering. This has been linked to at least 13 deaths. However, GM did not start recalling the 2.6 million Saturn, Pontiac and Chevrolet vehicles with the ignition switch problems until this February.

The settlement also calls for GM to make internal changes that regulators say will help it do a better job of detecting safety problems with its cars.

Since the recall problem became public, GM has created a position of vice president for global vehicle safety and hired 35-40 more safety investigators.

“We have learned a great deal from this recall. We will now focus on the goal of becoming an industry leader in safety,” said GM CEO Mary Barra in a statement. “We will emerge from this situation a stronger company.”

The money from the fine announced today goes to the U.S. Treasury, not to compensate crash victims.

The decade-long delay has prompted probes by the National Highway Traffic Safety Administration (NHTSA), as well as Congressional committees and the Justice Department.

NHTSA itself has faced criticism over its failure to order the recall earlier. NHTSA Acting Administrator David Friedman was called before congressional committees probing the recalls. He testified GM did not give the agency the information it needed to decide to order a recall.

The $35 million fine is the maximum amount that NHTSA can fine GM for a single violation by law. Earlier this year, Toyota Motor agreed to pay a $2 billion fine to settle criminal charges over its conduct during its massive unintended acceleration recall four years ago. That settlement was with the Justice Department, not the NHTSA. The safety regulator was able to impose fines of $48.8 million on the Japanese automaker, fining it for multiple violations.

The $35 million fine represents less than one percent of GM’s earnings for the last twelve months.

At a press conference Friday, Transportation Secretary Anthony Foxx admitted that the size of the fine amounted to a “rounding error” for an automaker of GM’s size. He said that his department is asking Congress to raise the limit for a single fine to $300 million.

“We do think $300 million is an attention grabbing amount,” he said.

Foxx came down hard on GM, saying that the company knew about the ignition switch and airbag related problems since at least November 2009. “They had that information and they told no one,” he said, according to David Shepardson of the Detroit News.

Added Foxx, “What GM did was break the law.”

CEO Mary Barra has apologized repeatedly for the delays and insisted that they are a result of a culture of the old, pre-bankruptcy GM that put cost concerns and profits ahead of customer safety. She insists the problems would not happen today.

NHTSA’s Friedman said there are some signs that GM’s culture has changed, but pointed out that some of the delays took place as recently as December 2013.

Friedman also said that the information about the ignition switch problem reached top executives at the company. When asked if Barra knew of the problem when she was a product development executive, before she became CEO in January, he said, “I don’t have any records of that.”

Despite today’s settlement, GM is not out of the woods. That is because the FBI is still investigating the automaker giant and it could face additional fines, a senior law-enforcement official told CNN.

So far this year, GM has recalled approximately 13 million vehicles. The latest came this morning when it recalled another 8,560 cars for problems with brakes. GM has already taken a $1.3 billion charge to deal with the cost of repairing the faulty ignition switches and other recalls it announced in the first quarter. That just about wiped out the company’s profits for the first three months of the year.

On Thursday, GM announced it was recalling another 3 million vehicle worldwide and it would take a $200 million charge for those repairs.

But the charges that GM is taking do not include any fines or penalties it will have to pay federal agencies, or payments it might have to make to crash victims and their families. As we posted on our blog last month, GM has hired attorney Kenneth Feinberg to help determine what to pay the victims.

The automaker also faces lawsuits from car owners seeking to collect damages related to the reduced value of their vehicles. But GM is arguing that its 2009 bankruptcy reorganization protects it from those lawsuits.

The way in which GM handled this delayed recall is so offensive, even the federal government doesn’t feel that the maximum fine is enough. Feel free to comment on this blog post. We will continue to keep you updated. For more information, contact one of our Gacovino Lake attorneys at 1-800-246-HURT (4878).

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