GM Receives Record Fine Over Slow Response to Ignition Problems

General Motors has agreed to pay a record $35 million fine and to submit to extensive government oversight after it was discovered tha the automaker sat on information for years involving defective ignition switches in several million Saturn, Pontiac and Chevrolet vehicles, which could cause the cars to suddenly shut off and increase the risk of serious injury in an accident.  

On Friday, the National Highway Traffic Safety Administration (NHTSA) announced that GM officials agreed to a consent order (PDF) that includes both a civil fine and oversight requirements that have been described as “unprecedented.”

The fine is the single highest civil penalty amount ever issued as a result of an NHTSA recall investigation, the agency claims.

In February, GM recalled nearly 800,000 vehicles sold in the United States, due to problems with ignition switches that could turn the vehicle off if heavy key chains are used or if the ignition is jarred, such as may occur in an accident.

The GM ignition switch problems may cause the airbags to fail when needed in an accident, and the auto maker has indicated that at least 13 deaths may have been caused by the defect. However, outside groups have suggested that the number could be substantially higher, with hundreds of reports submitted involving deaths among occupants of recalled vehicles where the airbags failed.

The original recall has since been expanded several times to include more than 2.5 million vehicles worldwide, with GM admitting it knew about the ignition switch problem for years without acting.

David Friedman, the NHTSA acting administrator, said in a press conference that the investigation into GM’s actions uncovered information that was “deeply disturbing.”

The NHTSA timeliness investigation found that the company was told by a supplier about the problem as early as 2009. At least as early as 2012, the company investigators and engineers knew it was an unreasonable safety hazard for drivers, according to emails the NHTSA found. The information was even noted in a legal deposition.

“So, GM engineers knew about the defect. GM investigators knew about the defect. GM lawyers knew about the defect,” Friedman said. “But GM did not act to protect Americans from that defect.”

It was not until December 2013 that GM decided a recall should be issued, but even the determination that a recall was needed didn’t lead the company to immediately act. It was not until January 31 that company officials agreed to report the ignition switch problem.

“The fact that GM took so long to report this defect says something was very wrong with the company’s values,” Friedman said. “GM desperately needs to rethink the corporate philosophy reflected in the documents we reviewed — including training materials that explicitly discouraged employees from using words like defect, dangerous, safety related, and many more essential for engineers and investigators to clearly communicate up the chain when they suspect a problem.”

Consent Order Requirements

In addition to the fines and an admission of guilt, the NHTSA consent order requires GM to submit a number of written plans to the NHTSA on how the company will improve safety and its responsiveness to defects and the culture inside the company.

One of the plans the company must submit will detail how it intends make sure as many vehicles affected by the recall as possible are repaired and will submit quarterly reports on its progress. It will also submit a plan on improving the process for employees to report possible safety-related defects.

The company will also have to meet with the NHTSA every month for at least a year to go over new technical service bulletins, and all of its decisions regarding safety issues.

The company’s safety obligations to the NHTSA stretch for three years.

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

Both internal and external probes into the company’s handling of the recall are ongoing, with investigators determining that GM knew or should have known about the defect for at least 10 years before a recall was issued.

According to a recent story by the New York Times, GM’s internal investigation has turned its eyes toward the company’s legal department. The investigation has found that lawyers tried to do damage control over the last year to prevent information from coming out during depositions in lawsuits brought by the families of crash victims killed by the defective ignition switches.

A growing number of GM recall lawsuits are being filed in state and federal courts throughout the United States, including personal injury claims, wrongful death claims, investor lawsuits and other class actions over the diminished value of the vehicles. All of the complaints involve similar allegations that GM failed promptly act to correct the ignition problems, and actively tried to conceal the issue by blaming incidents on driver error.

While GM has indicate it will compensate families of those killed in auto accidents where the defect may have been a factor, the company has decided to battle against those seeking economic damages. The company claims that its 2009 bankruptcy precludes any economic lawsuits involving company actions before the reorganization.

U.S. Bankruptcy Judge Robert Gerber has called for both sides to stake out their arguments on whether the company failed to treat customers with defective cars as creditors during the bankruptcy proceedings. The plaintiffs also have to show that the company hid information on the defects from Judge Gerber, who oversaw the bankruptcy.<

Given the NHTSA report, it appears likely that plaintiffs will be able to make such a claim.