GM agrees to $900M settlement over ignition-switch defect

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General Motors agreed to pay $900 million as part of a Justice Department investigation into its failure to fix a deadly ignition-switch defect blamed for more than 120 deaths.

Federal prosecutors hit GM with a wire-fraud charge and a charge for “engaging in a scheme to conceal a deadly safety defect” from regulators. But those counts would be dismissed in three years if GM fixes its recall processes. GM’s official plea is not guilty.

U.S. Attorney Preet Bharara left the door open to prosecuting specific GM employees. But he said it’s difficult to pin blame on an individual who may have had only partial knowledge of a backward bureaucratic process that led to tragedy.

“We’re not done, and it remains possible we will charge an individual,” Bharara said at a news conference in New York. “If there is a way to bring a case like that, we will bring it.”
GM engineers, attorneys and midlevel executives failed to fix the defect for more than a decade.


“To sum it up, they didn’t tell the truth in the best way that they should have, to their regulators, to the public, about the serious safety defects that risked life and limb,” Bharara said.

As part of the settlement, GM admitted to having defrauded customers by marketing its vehicles as safe during that period.

Separately, GM reached a deal to extend settlement offers to up to 1,385 additional victims of the defect. GM also confirmed that it has settled a shareholder lawsuit over its handling of the matter — with the two civil settlements collectively accounting for a $575 million charge on its third-quarter earnings.

That means the defect has now cost GM more than $2 billion in fines and settlements, a figure that does not include the cost of actually fixing 2.6 million recalled vehicles.

GM CEO Mary Barra on Thursday apologized again for the company’s behavior and said she’s overhauled internal procedures to encourage efficient communication and transparency.

“We promised to take responsibility for our actions,” she told employees in a town hall meeting. “So we accept the penalties being announced today because that’s what it means to be held accountable. But apologies and accountability won’t count for much if we don’t change our behavior. We can be proud that we have.”

The Justice Department will appoint a monitor to oversee the automaker’s recall processes for three years. No individual GM employees have been prosecuted, though prosecutors noted in the settlement documents that GM had fired “wrongdoers.”
That has been met with scorn from victims of the defect.

“There are people at GM who made decisions that caused these deaths. Yet, they will not suffer any consequences,” said Laura Christian, whose 16-year-old birth daughter Amber Marie Rose was killed in a July 2005 crash in a car affected by the defect, in a statement.

Bharara said the case posed a challenge because there are no federal laws that specifically cover failure to disclose motor vehicle safety defects.

“In the end, we can only do what the law permits,” Bharara said. “This is not only about justice for certain families, but for the safety of the car-driving public going forward.”

In a 52-page document chronicling their findings, federal investigators recited many of the same details regarding GM’s failure to fix the defect that were disclosed in various investigations in 2014, including the National Highway Traffic Safety Administration and congressional committees.

That included a statement to the press in 2005 acknowledging the issue but claiming that it did not pose a safety matter.

By no later than 2012, GM realized that the faulty ignition switches could cut off power to air bags, thus endangering front-seat passengers in a bad accident.

But instead of disclosing the issue, GM “concealed the defect from NHTSA and the public, taking the matter ‘offline,’ outside the normal recall process, so that the company could buy time to package, present, explain and manage the issue,” according to the settlement documents to which GM stipulated.

Barra, who did not know about the defect until days before it was publicly disclosed in February 2014, dismissed about 15 employees after an internal investigation blamed those workers for failing to disclose or fix the deadly flaw.

On Thursday, she called the settlement a “tough agreement” but appropriate. She told GM employees it’s imperative to never forget the company’s failures on this issue.

Before Thursday’s deal with additional victims, the automaker had already agreed to offer settlements for families of 124 people who were killed and 275 who were injured.

People who opted to sue GM instead of taking the original settlements may get compensated as part of the settlement negotiated by Texas attorney Bob Hilliard.

Lauren Gomez, a spokeswoman for Hilliard, said in an email that another 370 potential injury victims and families of another 84 potential victims who were killed are not part of the deal. Hilliard will continue to pursue lawsuits in those cases.

It was not immediately clear how many of the 1,385 additional plaintiffs who may qualify for settlements are tied to fatal cases or injury crashes. GM spokesman Pat Morrissey said he could not disclose that information.

GM said the plaintiffs, which it said numbered 1,380, represent about 60% of the personal-injury lawsuits it faces.

The shareholder lawsuit, which was filed in a federal court in Michigan, posed a threat to GM because it called into question the automaker’s failure to adequately disclose substantive financial risks to its investors.

The settlement of the criminal investigation into GM’s handling of the defective ignition switches comes after the matter triggered recalls of small cars, mostly from the 2003 through 2007 model years, such as the Chevrolet Cobalt and Saturn Ion.

“Lives were taken and families were devastated, and there is no way to ever change that sad fact,” Hilliard said. “Still, this agreement will allow some healing, as GM recognizes, through its payment of financial compensation.”

GM last year created a settlement fund administered by lawyer Ken Feinberg, who also ran the 9/11 victims compensation fund. Feinberg has approved settlement offers of more than $1 million per victim of fatal accidents — and often much more.

In the federal settlement, GM is paying a penalty of less than the $1.2 billion Toyota paid in connection with its handling of an unintended acceleration case.

Prosecutors credited GM with providing “unvarnished” facts and what Bharara described as “fairly extraordinary” cooperation with their investigation. The company also faces probes by state attorneys general and other lawsuits.

Lance Cooper — a Georgia attorney who discovered the hidden defect during a lawsuit, triggering the chain of events that led to its public disclosure — blasted the settlement.

“We had hoped that justice would be served in the criminal investigation of GM,” he said in a statement. “Unfortunately, it’s the same old story — if you have enough power and money you can always buy your way out of truly being held accountable for your misdeeds.”

The ignition-switch defect caused small cars, mostly from GM’s pre-bankruptcy era, to turn off suddenly when jostled, cutting off engine power and disabling airbags.

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1 Comment

  1. There should be mandatory jail sentences for executives who engage in cover ups and fraud. Fines are ridiculous and a indication of corruption on the part of government lawyers.