A $35 Million Fine Won't End General Motors Company's Troubles

Why GM agreed to pay $35 million to settle with the Feds on Friday -- and why it's not the end of GM's recall woes.

May 16, 2014 at 12:32PM


GM's long-delayed recall of millions of compact cars for an ignition-switch defect touched off a Federal investigation. Shown is a 2008 Chevrolet Cobalt SS, one of the vehicles affected by the recall. Source: General Motors Co.

A very big fine for the General: The U.S. National Highway Traffic Safety Administration, or NHTSA, announced on Friday that General Motors (NYSE:GM) will pay a $35 million fine for failing to report an ignition switch defect in a timely matter. 

The defective ignition switches, found in Chevrolet Cobalts, Saturn Ions, and other GM compact cars made in the last decade, are blamed for at least 13 deaths. GM recalled the affected vehicles earlier this year.

The $35 million fine is a record -- it's the highest amount allowed by law. It's just one part of a settlement between NHTSA and GM. Under the settlement, called a "consent order", GM agreed to make major changes in how it investigates and handles safety complaints.

A big fine is the least of GM's problems
"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 statement on Friday.

As federal fines go, $35 million is enormous -- but it's a relatively small amount compared to what GM has already spent on this recall mess. 

And it's no surprise that GM would readily agree to a hefty fine to settle NHTSA's investigation. Barra's strategy has been clear for weeks: Get this thing over with as soon as possible.

Gm Ignitionparts

This GM diagram shows the parts affected by the ignition-switch recalls. Source: General Motors Co.

Barra wants all of GM's dirty old laundry aired right now. That's why GM has announced a slew of additional recalls since news of the ignition-switch broke earlier this year.  

Recalls are part of doing business for any automaker, but GM's have gone far beyond norms this year. So far in 2014, GM has recalled 12.8 million vehicles -- far more than the roughly 1.8 million recalled vehicles it averaged in each of the five years prior.

And it's why GM was willing to strike an expensive agreement with the Feds on Friday -- an agreement that includes a lot more than a fat fine.

The Feds want GM's internal procedures overhauled, too
The U.S. Department of Transportation said in a statement on Friday that the consent order requires GM "to make significant and wide-ranging internal changes to its review of safety-related issues in the United States, and to improve its ability to take into account the possible consequences of potential safety-related defects."

What's that mean? In a nutshell, it means that GM agreed to make sure that its employees report potential problems to management, and to speed up its internal process for reviewing potential problems and deciding whether to issue a recall.

GM has already taken some big steps down that road, starting with the appointment of veteran engineer Jeff Boyer as GM's first ever Vice President of Global Vehicle Safety back in March.  Boyer said in a statement on Friday that GM has already made organizational changes to improve internal safety oversight and reporting.

The upshot: Still not the end of the road for GM
It's not clear if Friday's consent order will require changes to GM's internal safety procedures that go beyond the ones that Barra and Boyer have already set in motion. (It's likely that NHTSA was consulted on the changes that have already happened.) 

But it is clear that this agreement won't represent the end of GM's troubles stemming from the long-delayed recall. While the agreement settles civil charges from NHTSA, GM could still face criminal charges -- and is already facing a host of lawsuits.

GM said on Thursday that it could take up to $200 million in charges against its second-quarter earnings for costs related to the recalls. That's in addition to the $1.3 billion in charges that nearly wiped out its profits in the first-quarter. 

But Friday's settlement with the Feds does show that Barra is determined to move as quickly as possible to resolve this issue. It's possible that more settlements could come over the next few weeks. Stay tuned.

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