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General Motors is fined $35 million over deadly defect

Published: Friday, May 16, 2014 11:35 p.m. CDT • Updated: Saturday, May 17, 2014 12:51 a.m. CDT
Caption
(AP file photo)
Transportation Secretary Anthony Foxx March 14 on Capitol Hill in Washington. U.S. safety regulators have fined General Motors $35 million for delays in recalling small cars with faulty ignition switches that are linked to at least 13 deaths. This marks the first time the government has imposed the maximum penalty allowed by law against an automaker. Still, the amount is less than a day's revenue for the automaker, based on the $37.4 billion it took in during the first quarter.

WASHINGTON – Federal safety regulators slapped General Motors with a record $35 million fine Friday for taking more than a decade to disclose an ignition-switch defect in millions of cars that has been linked to at least 13 deaths.

Under an agreement with the Transportation Department, GM admitted it was slow to inform regulators, promised to report problems faster and submitted to more in-depth government oversight of its safety operations.

The fine was the maximum the department can impose.

"Literally, silence can kill," Transportation Secretary Anthony Foxx said, adding: "GM did not act and did not alert us in a timely manner. What GM did was break the law."

Safety advocates said the fine, which is less than a day's revenue for GM, is too small to deter bad behavior by automakers.

Clarence Ditlow, executive director of the nonprofit Center for Auto Safety, said the Justice Department – which is conducting a parallel criminal investigation – should fine the company $1 billion or more and bring charges against GM engineers and their superiors.

"That's the only way you're going to change GM's behavior," he said.

Congress is also investigating GM, and the automaker faces hundreds of lawsuits over deaths and injuries attributed to the ignition switch.

The company has acknowledged knowing that the switches in its small cars had problems since at least 2001. But it was not until February that it began recalling 2.6 million of the cars, mainly Chevrolet Cobalts and Saturn Ions.

Automakers are required by federal law to report safety defects to the government within five days of discovering them.

When jostled, the ignition switches can slip out of the "run" position and shut off the engine. That cuts off the power steering and brakes, potentially causing drivers to lose control. It also disables the air bags.

GM says at least 13 people have died in crashes linked to the problem. Lawyers suing the company say the death toll is at least 53.

The Transportation Department's National Highway Traffic Safety Administration, which has been criticized for failing to take action on the switches despite thousands of complaints from car owners, used a news conference to turn the tables on GM, detailing some of the most damning evidence against the automaker.

Acting NHTSA Administrator David Friedman said a 2009 memo from a parts supplier to GM stated that the switch problem could disable the cars' air bags. Had the government been told that at the time, it would have sought a recall, Friedman said.

Friedman said it was clear many GM employees knew about the bad switch years ago, from engineers to executives. But he said the agency has no records to contradict CEO Mary Barra's claim that she found out about it only recently.

He portrayed the scandal as part of a larger problem with the safety culture at GM, saying the automaker's training materials discouraged employees from using words like "defect" or "dangerous" when reporting trouble up the chain of command.

"The fact that GM took so long to report this defect says there was something very wrong with the company's values," Friedman said.

GM received a $49.5 billion bailout from Washington during its 2009 bankruptcy, and the government was once the automaker's majority shareholder, but it sold off the last of its GM stock in December.

GM stock closed Friday down just 36 cents, or 1 percent, at $34.

GM is already making changes. It has named a new safety chief and has begun checking records for problems that could lead to recalls. So far this year the automaker has issued 24 recalls totaling 11.2 million cars and trucks.

"We have learned a great deal from this recall. We will now focus on the goal of becoming an industry leader in safety," Barra said.

Earlier this year, after a four-year criminal investigation, the Justice Department made Toyota pay $1.2 billion for concealing unintended acceleration problems from NHTSA. No individuals were charged with a crime.

While the maximum fine that the Transportation Department can impose was doubled to $35 million this year, Foxx urged Congress on Friday to raise it to $300 million.

Even though GM's bankruptcy shields it from some past liability, the company has hired lawyer and compensation expert Kenneth Feinberg to negotiate settlements.

Carl Tobias, a law professor at the University of Richmond, said the government's action Friday "makes GM's exposure to liability greater, or the damages for which families ultimately settle larger."

Under the agreement, GM has to give NHTSA full access to the results of an internal investigation being done for the company by a former federal prosecutor. It will probably be finished in about two weeks.

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