GM fined $35 million for delayed recalls, agrees to wider safety oversight

NHTSA: 'Historic' consent decree crafted to fix company's 'broken' practices

Transportation Secretary Anthony Foxx, right, and acting NHTSA Administrator David Friedman, said GM will be fined a record $35 million in civil penalties for failing to report a safety defect. Foxx again called for a hike in the maximum fine to $300 million. Photo credit: REUTERS

UPDATED: 5/17/14 12:32 pm ET -- adds details

General Motors agreed to pay the government’s maximum fine of $35 million, make “significant and wide-ranging internal changes” in its handling of future safety defects and be subject to wide-ranging U.S. oversight for up to three years after waiting too long to recall 2.6 million cars with faulty ignition switches, federal safety regulators said today.

As part of a sweeping consent decree with the National Highway Traffic Safety Administration, GM admitted that it broke federal law with its handling of the recall, an acknowledgement that Toyota Motor Corp. did not make when it was fined in connection with unintended-acceleration recalls.

David Friedman, the acting administrator of NHTSA, today called the findings of the agency’s investigation into GM’s recall “deeply disturbing.”

NHTSA learned that GM knew in 2009 of a definitive connection between the ignition switches and airbags failing to deploy in crashes.

“They had that information, and they told no one,” U.S. Transportation Secretary Anthony Foxx said today at a news conference in Washington. “These penalties should put all automakers on notice that there is no excuse and zero tolerance for failing to notify the federal government when a defect puts safety at risk.”

GM agreed to give regulators full access to the results of its internal investigation of the recall, to make changes ensuring that employees report safety defects to management and to “speed up” its recall decision-making process.

The recall, announced Feb. 13 and twice expanded since then, covers the 2005-10 Chevrolet Cobalt, the 2003-07 Saturn Ion and related models. GM has linked the recall to 13 front-seat deaths and 35 frontal crashes in which the airbags did not deploy.

Other probes

The fine announced today resolves NHTSA’s inquiry into the timeliness of the recall, but it does not relate to ongoing investigations by the U.S. Justice Department, the Securities and Exchange Commission and a group of state attorneys general, nor does it settle any of the 75 lawsuits that have been filed in federal court.

GM is expected to compensate injured crash victims and the families of those killed, though it has not announced plans to do so.

The deal announced today makes GM subject to what Friedman called “unprecedented oversight” requiring the following actions:

  • Meet with NHTSA monthly for at least the next year to discuss new technical-service bulletins and decision-making on any “actual or potential safety-related defect issues.”
  • Provide NHTSA with a monthly list of every safety-related issue being evaluated by the company. “The instant they see that there is a potential safety issue, they have to tell us about it,” Friedman said.
  • Give NHTSA a full copy of GM’s internal investigation, conducted by lawyer Anton Valukas, by June 30, and meet with the agency every month for the next year to discuss implementation of the report’s recommendations.
  • Submit reports on the progress of the ignition recall every two weeks for six months and then monthly until May 2017. Encourage customers to get their cars repaired by reaching out to non-English speakers, posting updated information online and communicating through the media.
  • Notify NHTSA if its anticipated production schedule for replacement ignition switches changes by more than five days.
  • Improve its process by which employees can report potential safety concerns and “rigorously enforce” a policy that prevents retaliation against employees who report such issues.
  • Conduct simulations in which NHTSA uses hypothetical scenarios to assess the effectiveness of GM’s response to reported safety defects.
  • Not wait to decide on a recall until the precise cause or repair plan is identified.

Federal law requires automakers to notify safety regulators within five days after determining that vehicles are defective.

GM hasn’t fully complied with a request from NHTSA to answer 107 questions related to the recall. The agency has been fining the company $7,000 a day since it failed to meet an April 3 deadline for detailed answers and information.

GM has said it is waiting for the findings of the internal probe led by Valukas before responding to some of NHTSA’s inquiries. Valukas is expected to complete his review by June 1, GM has said.

Friedman said the fines will continue to rack up until the requests are filled, adding GM is still obligated to comply under the new legal agreement.

Multiple studies

Documents filed by GM indicate that its engineers first encountered a problem with the switch in 2001 and studied the issue multiple times in 2004 and 2005 without issuing a recall or modifying the switch.

In 2007 and again in 2010, NHTSA reviewed data related to the non-deployment of airbags in certain Chevrolet Cobalt models but each time the agency determined that it lacked necessary data to open a formal investigation.

“These penalties should put all automakers on notice that there is no excuse and zero tolerance for failing to notify the federal government when a defect puts safety at risk.”
Anthony Foxx
U.S. Secretary of Transportation

Friedman said NHTSA reviewed evidence that GM engineers, lawyers and even some high-level executives were given information about the problem, without naming anyone specifically. He said the agency had “no records” that CEO Mary Barra was aware of it before Jan. 31, when a GM committee approved the recall.

“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 in a statement issued by the company. “We will emerge from this situation a stronger company.”

Speaking to reporters today at agency headquarters, Friedman described this unprecedented step as necessary to change GM's corporate practices.

No single fault

Along with today's consent order, NHTSA released an internal memo, provided to GM's testing engineers in 2008, that discouraged them from using words with "emotional connotations" to describe issues that arose with GM cars.

Among those words: "defect," "flawed," "problem," "serious" and safety."

"To be honest, after going through the data, it is hard to point to one single fault in the system," Friedman said. "That's why we have required such extensive oversight of General Motors … Their process was broken. They need to fix it."

Friedman: "Their process was broken. They need to fix it."

NHTSA ordered Toyota to pay three fines totaling nearly $50 million in 2010 and 2012 for failing to issue recalls for unintended acceleration in a timely matter.

Congress has doubled the maximum fine to $35 million per incident since then, and today, Foxx said he supports raising it to as much as $300 million. He called the current maximum “a rounding error” in the scope of an automaker’s finances.

Congress must approve any adjustments in the maximum fine the agency can issue for noncompliance.

“We do think $300 million is attention-grabbing and capable of creating deterrent value for automakers,” Foxx said.

Congress weighs in

While past proposals to raise the cap met resistance, some Democrats are pushing for bigger fines.

"I don't believe the $35 million fine is nearly enough for misconduct of this magnitude," said U.S. Sen. Claire McCaskill, D-Mo., who chairs a subcommittee that is investigating GM's handling of the defect.

Sen. Richard Blumenthal, D-Conn., told reporters today that he intends to introduce legislation within the next couple weeks to entirely eliminate the $35 million cap.

"Although it cannot be applied to GM retroactively," Blumenthal said, "it will certainly provide an effective deterrent for companies that conceal the kind of serious safety defects and damage that GM did."

Gabe Nelson contributed to this report.

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