General Motors is believed to have reached a settlement with the Justice Department in a criminal investigation of the automaker’s handling of its deadly ignition switch defect. The settlement, which could include a fine of up to $900 million, could be announced as soon as this week.
The Wall Street Journal’s Mike Spector, Christopher Matthews and Devlin Barrett summed up the settlement:
General Motors Co. is expected to reach a criminal settlement with federal prosecutors as soon as Thursday, a punishment for the auto maker’s botched handling of an ignition-switch defect that led it to recall millions of vehicles and was linked to more than 100 deaths.
The settlement will help put a bookend on one front of a safety crisis that tarnished GM’s recovery from bankruptcy, reduced its coffers and damaged its reputation among consumers.
The deal between GM and federal prosecutors in New York is expected to charge the auto maker with criminal wire fraud for allegedly making misleading statements and concealing information about the faulty switch, and to include a financial penalty of roughly $900 million, people familiar with the matter said. But two of the people said the deal is unlikely to include charges against individual GM employees. Prosecutors are also likely to discuss a sizeable compensation fund set up by GM for victims, the people said.
The criminal charges won’t be limited to just the wire-fraud charge, one of the people said.
The auto maker is expected to enter a deferred-prosecution agreement under which the government will eventually seek to dismiss the case if the company abides by the deal’s terms, according to the people familiar with the matter. The two sides were still finalizing the settlement on Wednesday, and it could still fall apart.
The settlement with prosecutors comes after GM failed for over a decade to recall vehicles with the faulty switch, despite signs of a deadly problem. It is the second of its kind in a crackdown on auto makers for safety problems led by the U.S. attorney’s office in Manhattan and the New York field office of the Federal Bureau of Investigation.
Prosecutors are still investigating individual employees, but the prospect of criminal charges against them has dimmed as the probe has advanced, according to people familiar with the matter.
Ben Protess and Danielle Ivory of The New York Times recapped how GM got to this point:
G.M.’s problems surfaced publicly in February 2014, when it begin recalling 2.6 million Chevrolet Cobalts and other small cars with the defective ignition switches. Soon after, evidence began to emerge that workers had been aware of clues pointing to the defect for more than a decade.
The company initially said that it knew of 13 deaths linked to the ignition flaw. Today, the death count stands at at least 124. G.M. has paid a heavy price not only in its reputation but also to its bottom line. It has set aside almost $4 billion to cover the cost of its recalls, which now extend far beyond the ignition switch, and it also paid $35 million penalty, a record at the time, for failing to disclose the defect to regulators in a timely manner.
In an internal investigation paid for by G.M. and released on June 5, the former federal prosecutor Anton R. Valukas painted a portrait of a dysfunctional organization, more incompetent than criminal. Within G.M., Mr. Valukas said, employees failed repeatedly to seize opportunities to disclose and fix the ignition defect for more than a decade, even as the company settled lawsuit after lawsuit related to the flaw and engineers complained to one another about the troubled cars.
Laura Christian, the birth mother of 16-year-old Amber Rose, who was killed in a July 2005 crash in Maryland, said she was shocked to hear that G.M. might pay less than Toyota paid to resolve its case.
“That’s giving G.M. and the other auto manufacturers permission to do it again,” Ms. Christian said. “And all of the people who were killed in these crashes, including my daughter, will have lost their lives in vain.”
David Ingram, Nate Raymond and Joseph White of Reuters said the settlement would be a major milestone for the automotive industry:
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 Chief Executive Mary 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 also recalled more than 30 million vehicles in North America in 2014 to fix a wide array of defects.
GM’s approach contrasted with Toyota, which was slower to cooperate with regulators in response to defects related to incidents of sudden acceleration.
Toyota in March 2014 agreed to pay $1.2 billion to settle a charge that it concealed a problem in its vehicles that caused them to accelerate suddenly. That penalty remains the largest ever levied by the United States on an auto company.
Kevin Johnson, Nathan Bomey and Greg Gardner of the Detroit Free Press detailed how GM created a fund to help it pay off settlements:
GM created and funded an independently administered fund to examine incident reports and offer settlements to victims after the issue was publicly disclosed in early 2014.
That fund, run by lawyer Ken Feinberg, who also ran the 9/11 victims compensation fund, has approved settlement offers for families of 124 victims who were killed and 275 who were injured. GM has set aside more than $600 million to cover those settlements.
A settlement between GM and the Justice Department would remove a cloud of legal and financial uncertainty. Earlier this year, a bankruptcy judge ruled the automaker had violated bankruptcy law by neglecting to disclose the ignition switch defect during its Chapter 11 case in 2009.
In 2014, GM admitted that some of its employees knew about the ignition switch defect as early as 2003. Company attorneys and outside counsel approved settlements with families who lost loved ones in accidents caused by the defect. But the company didn’t recall any cars until February 2014. Eventually it recalled 2.6 million cars equipped with the defective ignition switches.
CEO Mary Barra fired 15 engineers and attorneys for not doing more to tell higher-ranking executives how serious the problem was. The company then initiated a record number of recalls that affected nearly 30 million vehicles worldwide last year and reorganized its safety response organization.
