GM reaches $900M deal to settle criminal probe

U.S. auto maker to pay $575M to settle civil, investor suits.

0 September 17, 2015
by Canadian Press

14-feb-Ford-ignition-recall-360NEW YORK — General Motors agreed to pay $900 million and submit to a monitor in a deal with the government in which it admits that a deadly problem with small-car ignition switches was hidden from the public for over a decade, authorities announced Thursday.

The agreement calls for two criminal charges to be dismissed after three years if the automaker co-operates fully.

Also Thursday, GM announced it that it will spend $575 million to settle many of the civil lawsuits filed against the company over the ignition switch problems. So far, at least 169 deaths have been linked to the problem.

The statement of facts to which the company agreed describes in scathing terms GM’s deceitful and dismissive approach to handling a problem that was evident even before the defective switch went into production in 2002.

When GM employees, the media and some customers complained about the switch in 2004 and 2005, the company’s engineers left the switch alone and even rejected a simple improvement that would have significantly reduced the problem at a cost of less than a dollar per car, court papers said.

As part of its deal, the automaker will retain an independent monitor to review and assess its policies to ensure compliance with the agreement, according to court papers released by U.S. Attorney Preet Bharara in Manhattan.

Among duties, the monitor will review GM’s procedures and ensure GM corrects prior statements and assurances concerning motor vehicle safety. The monitor also will study the company’s current procedures for addressing known defects in vehicles.

Court papers said even though the dangers of the switch became plain in the spring of 2012, the company did not correct its earlier assurance that the switch posed no safety concern.

Instead, prosecutors said, it concealed the defect from regulators and the public “so that the company could buy time to package, present, explain and manage the issue.”

The prosecutor planned a noon news conference Thursday to formally announce the deal. Court papers pertaining to it were signed Wednesday.

Besides the $900 million forfeiture and the monitor, the agreement calls for two criminal charges to be dismissed if the company complies with terms of the agreement for three years. The $900 million must be paid by Sept. 24.

The two-count criminal information accuses GM of wire fraud and scheming to conceal material facts from a government regulator.

The wire fraud count pertained to the company’s false assurances to customers over the Internet in 2012 and 2013 of the safety of used cars they were purchasing, court papers said.

Last year, GM recalled 2.6 million older small cars worldwide to replace the faulty switches. Those included the Chevrolet Cobalt and Saturn Ion.

The faulty switches can unexpectedly slip out of the run position to off or accessory. That shuts off the engine and disables power-assisted steering, power brakes and the air bags.

Last year, GM established a fund to compensate victims. Lawyers administering the fund accepted 124 death claims and 275 injury claims. Families of those who died will get at least $1 million. GM has set aside $625 million to compensate people who accept a settlement with the fund.

Texas attorney Bob Hilliard represented 1,385 plaintiffs with death or injury claims who decided not to seek compensation from the fund. On Thursday, GM said it has agreed to spend part of $575 million to settle those lawsuits, including 45 deaths. The money also will be used to settle a shareholder lawsuit that alleged the company withheld information on the switches, and eventually the problem reduced the value of company stock.

GM was the world’s top-selling automaker for seven decades before being passed by Toyota in 2008. During the first half of this year, GM slipped to third place in global sales as Volkswagen edged Toyota out of first place.

The company acknowledged that some of its employees knew about the problem for more than a decade, but no cars were recalled until early last year. GM hired former federal prosecutor Anton Valukas to investigate the matter, and he found no wrongdoing on the part of top executives. Instead, he blamed the problem on a bureaucratic corporate culture that hid problems and failed to take action.

It was unclear if any individuals would be charged in the ignition switch probe. After the Valukas report was released, GM fired 15 employees including engineers and lawyers, for failing to act to resolve the switch problem.

The recalls led to other changes at GM. CEO Mary Barra appointed a new safety chief who reports directly to her and added 35 product safety investigators to its staff. The company changed its product development process to focus more on safety. It also started a program that encourages employees to speak up if they uncover a safety issue.

GM also reviewed a backlog of safety issues in 2014 and issued a record 84 recalls covering more than 30 million vehicles, including 27 million in the U.S. By comparison, this year it has issued 33 recalls covering 2.6 million cars and trucks.

Clarence Ditlow, executive director of the Center for Automotive Safety, a non-profit advocacy group and frequent auto industry critic, said it appears that no GM employees will be charged as part of the criminal investigation.

“GM killed over a 100 people by knowingly putting a defective ignition switch into over 1 million vehicles,” he said. “Today thanks to its lobbyists, GM officials walk off scot-free while its customers are 6 feet under.”

In May 2014, the National Highway Traffic Safety Administration, an agency required to be notified about safety defects, levied a record civil penalty of $35 million against GM. It said the company violated federal law when it failed to notify the government of safety-related defects within five days of learning about them. NHTSA said GM also failed to respond in a timely manner to the government’s requests for information during its investigation of the defective switches.

The deal with GM comes roughly a year and a half after Toyota agreed to a $1.2 billion penalty from the Justice Department, admitting it hid information about defects that caused Toyota and Lexus vehicles to accelerate unexpectedly and resulted in injuries and deaths. The Justice Department said at the time that it was the largest penalty of its kind ever imposed on an auto company.

GM’s fine was likely less than Toyota because the company co-operated with the investigation, according to legal analysts.

AP Writers Larry Neumeister in New York and Dee-Ann Durbin in Detroit contributed to this report.

© 2015 The Canadian Press

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