GM may pay record penalty for defect


The U.S. Justice Department has found criminal wrongdoing in General Motors' failure to disclose a vehicle defect related to more than 100 fatalities. GM is negotiating a financial penalty with USDOJ which may set exceed the $1.2 billion paid by Toyota in 2014 for concealing unintended acceleration problems in its cars. Former GM employees are also under investigation and could face criminal charges.

In February 2014, GM began a recall of 2.6 million Chevrolet Cobalts and other small cars with faulty ignitions that could expectantly turn off the engine and disable power steering, power brakes and airbags. This eventually led to a worldwide recall of a more than 30 million vehicles which set a record for GM.

GM's recall expansion differed from Toyota's approach. There were charges that Toyota kept unsafe vehicles on the road despite signs of trouble. The Justice Department agreed to defer prosecution of Toyota for wire fraud if it complied with a continuing review of its safety practices.

GM may receive cooperation credit in the ongoing criminal investigation of whether it failed to comply with laws governing timely disclosure of defects, if it misled federal regulators on the extent of the problems and whether it committed fraud by not disclosing the defect during bankruptcy proceedings in 2009. It has not been determined whether GM, as part of a settlement, will receive a deferred-prosecution agreement of if the Justice Department will compel it to plead guilty to a crime. A guilty plea would have the symbolic impact of a felony.

GM may face other legal problems. Attorneys General from several states are engaged in consumer fraud investigations. GM also faces many wrongful-death and personal injury lawsuits.

GM spent approximately $3 billion on recalls and other safety issues in 2014. This included $600 million that was set aside to compensate switch-related car accident victims and their families. GM also paid a $35 million penalty to the National Highway Transportation Safety Administration because it did not timely report the switch recall. Since last May, GM had to provide regular reports to regulators about its safety practices.

Victims of car accidents caused by a negligent driver or defective vehicle may be entitled to damages for the medical expenses and losses that are incurred. Prompt legal assistance can help assure that rights are protected in a lawsuit.

Source: The New York Times, "G.M. Inquiry Said to Find Criminal Wrongdoing" Danielle Ivory, Bill Protess and Bill Vlasic, May 22, 2015

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