Federal prosecutors today announced a $900 million fine against General Motors and said they have ruled out criminal charges against some -- but not all -- of the 15 GM employees fired in connection with last year’s ignition-switch recall.
The deal answers one of the biggest remaining questions about GM’s liability in the wake of the defect, at a cost less than many analysts were expecting. Hundreds of lawsuits remain outstanding.
The Justice Department charged GM with scheming to conceal a deadly defect and wire fraud but agreed to drop the case in three years if the automaker complies with an independent monitor who will be hired to oversee its safety practices until then. GM admitted it failed to disclose the defect, which is tied to at least 124 deaths and was known to employees at various levels of the company more than a decade ago.
GM CEO Mary Barra, at a town-hall meeting with employees today, said the company is committed to following all the terms of the agreement as well as to showing the world that it has changed the culture that allowed the defect to go unaddressed.
“People were hurt and people died in our cars. That’s why we’re here today,” said Barra, who succeeded Dan Akerson about two months before GM announced its first ignition switch recall in February 2014. “We accept the penalties being announced today because that’s what it means to be held accountable.”
The fine is 25 percent less than what Toyota Motor Corp. paid last year for its mishandling of defects, a fact that angered safety advocates, lawyers and family members of crash victims. In contrast to Toyota, prosecutors said GM cooperated extensively with their investigation, voluntarily providing documents and “a continuous flow of unvarnished facts” to help them understand what happened.
“Toyota paid more but was guilty of less,” Bob Hilliard, one of the lead lawyers in the biggest cases against GM, said in a statement. “Hundreds of deaths resulted from GM’s conduct and yet they simply write a check and go home. This is a remarkably jaw-dropping and incredibly sad result.”
Separately today, Hilliard and GM announced an agreement to settle about 60 percent of the death and personal-injury claims pending against it, as well as a class-action lawsuit brought by shareholders. GM said it was taking a $575 million charge in the third quarter for those settlements.
Hilliard said about 84 death cases and 370 injury cases would still be litigated if the partial accord is approved.
U.S. District Judge Alison Nathan in Manhattan signed off on the $900 million fine this afternoon. The payment will be treated as a penalty, including for tax purposes.
The Justice Department did not charge any individuals, though it credited GM in the deferred prosecution agreement with “terminating wrongdoers.” U.S. Attorney Preet Bharara in Manhattan said his office is continuing to investigate GM employees but that there are “legal and factual” challenges to prosecuting them.
“The law does not always let us do what we wish we could do,” he said.
Negotiations pre-dated a new U.S. Department of Justice policy that requires companies to identify people who may have committed wrongdoing if they want credit for cooperating.
Laura Christian, a Maryland woman whose daughter Amber Marie Rose died in a high-speed Chevrolet Cobalt crash in July 2005, called on Congress to pass laws making it easier to hold individual employees criminally responsible.
“Monetary fines are grossly inadequate and will never serve as a serious deterrent to corporations purposely concealing defects that cause deaths and injuries. But jail time will,” Christian said in a statement sent to reporters. “While nothing can bring my daughter back, we need a system where auto executives are accountable to the public and not just corporate profits.”
U.S. Sens. Richard Blumenthal, D-Conn., and Edward Markey, D-Mass., called the agreement "extremely disappointing," and said victims deserved "individual criminal accountability, as well as a larger monetary penalty."
Clarence Ditlow, head of the watchdog Center for Auto Safety in Washington, D.C., lamented that the accord lets GM officials “walk off scot-free while its customers are six feet under.”
Barra declined to discuss the lack of individual charges, saying that’s a decision for prosecutors. She was joined at the town-hall meeting by Mark Reuss, GM’s product development chief, who called the settlement “another step in a disappointing journey for all of us.”
Reuss said he wanted GM to establish itself as a safety leader in the industry and adopt a “zero-defect mentality.” He said GM’s field actions already have become smaller as a result of the changes implemented in the past 18 months.
“As disappointing as it was for us,” Reuss said, “we must remember that it was devastating for people who bought our cars. You can put it in the mirror and go forward but you’ll always see it back there. And remember it’s closer than it appears.”
The defect caused some Cobalts, Saturn Ions and other GM vehicles to stall, preventing airbags from deploying during crashes. It also prevented power steering and power brakes from operating in some vehicles.
Barra in 2014 undertook a series of actions to atone for the ignition switch failure, including appointing a new safety czar, overhauling GM's product engineering organization, and pushing out 15 executives connected to the mishandling of the switch defects in a scathing report prepared by former federal prosecutor Anton Valukas, now a senior partner at the law firm Jenner & Block.
GM took charges totaling $4.2 billion in 2014 to reflect costs associated with recalls, and a special fund was established to compensate victims of the ignition switch defect. It was not immediately clear whether GM would take additional charges to account for a settlement of the criminal probe.
The settlement is a milestone in a case that over the past two years drove a transformation in the once cozy relationship between the auto industry and regulators in the U.S. government.
Outrage over the GM ignition switch case prompted a much tougher approach by Washington toward auto safety issues and compelled automakers to act more quickly and comprehensively to recall vehicles with potentially dangerous defects.
GM also recalled more than 30 million vehicles in North America in 2014 to fix a wide array of defects.
GM agreed with the U.S. Transportation Department in May 2014 to pay a $35 million fine over its delayed response to the defect. Separate from the action by the Justice Department, the fine was the maximum the Transportation Department could impose.
GM’s scathing internal report, released in June 2014, portrayed GM as a haven of dysfunction, where signs pointing to the defect were ignored or not pursued for years.
Reuters contributed to this report.