NYT: G.M. Is Fined Over Safety and Called a Lawbreaker

http://www.nytimes.com/2014/05/17/business/us-fines-general-motors-35-million-for-lapses-on-ignition-switch-defect.html

MAY 16, 2014

G.M. Is Fined Over Safety and Called a Lawbreaker

By MATTHEW L. WALD and DANIELLE IVORY

WASHINGTON -- Saying that safety practices at General Motors were "broken," federal regulators on Friday imposed the biggest punishment they could on the automaker and condemned it over its failure to promptly report a defect that G.M. has linked to 13 deaths.

G.M. will pay a $35 million penalty -- the maximum allowed and the largest ever imposed on an automaker -- and will be required to make wide-ranging changes to its safety practices that will be supervised by the government, another first for an automaker.

"What G.M. did was break the law," Anthony Foxx, the secretary of transportation, said at a news conference.

The investigation found "deeply disturbing" evidence over how G.M. treated safety concerns, said David Friedman, who works under Mr. Foxx as the head of the National Highway Traffic Safety Administration.

Mr. Friedman cited an internal presentation from 2008 that was used to train employees to obscure some problems.

Workers writing reports were encouraged to avoid using certain words and phrases with negative overtones, including "apocalyptic," "dangerous," "death trap," "potentially disfiguring," "rolling sarcophagus," and "Corvair-like," as well as more benign phrases like "safety" and "safety related."

The internal presentation [1] also instructed employees not to be "cute or clever." It gave examples of "comments that do not help identify or solve problems," including, "This is a lawsuit waiting to happen," and, "Kids and wife panicking over the situation."

The new requirements represent a return of sorts to the oversight that G.M. thought it had escaped last December, when the government sold off the final piece of the company it had acquired as part of its $49.5 billion federal bailout.

Under the consent order, G.M. must meet monthly with regulators for a year and provide a list of every safety-related issue under consideration by the company, as well as report on any new communications with dealers.

The company also agreed to improve information-sharing across its different units, make recall decisions more quickly and revise its analysis practices to improve the ability to identify safety issues.

Mr. Friedman said that the close oversight of G.M. by the safety agency -- which itself is under investigation by lawmakers for failing to act on the problem -- would last up to three years and would be thorough "to the point that the instant they see there's a potential safety issue, they have to tell us about it."

G.M. said it would work with regulators to improve its safety practices.

"We have learned a great deal from this recall," Mary T. Barra, G.M.'s chief executive, said in a statement. "We will now focus on the goal of becoming an industry leader in safety. We will emerge from this situation a stronger company."

G.M. has already made changes to its safety practices [2] since the recall began.

It has appointed a new global head of vehicle safety, Jeff Boyer, and named a new vice president in charge of global product integrity, Ken Morris. It has hired a team of product investigators to examine consumer complaints and warranty claims for potential product safety issues in vehicles.

The government's review of internal company documents showed that G.M. had known since at least November 2009 that faulty ignition switches were prone to turn off, preventing the air bags from working.

Red flags appeared over and over in the months that followed, but G.M. did not tell the government and initiate a recall until February of this year, which grew to include 2.6 million Chevrolet Cobalts, Saturn Ions and other small cars.

"Their process was broken, and they need to fix it," Mr. Friedman said.

The investigation failed to establish whether Ms. Barra, a high-ranking engineering executive for years and the chief executive since Jan. 15, knew about the problems. In tense testimony before House and Senate committees in March, she denied having any knowledge before Jan. 31.

The size of the penalty, though the maximum allowed, quickly came under fire from lawmakers and safety advocates, who criticized it as far too small.

"A penalty of $35 million is a parking ticket in comparison the toll this defect has taken on the lives of America's families," Senator Edward J. Markey, Democrat of Massachusetts, said in a statement. A proposal before Congress, pushed by the safety agency, would raise the maximum penalty in future cases to $300 million.

Senator Richard Blumenthal, Democrat of Connecticut, also criticized the size of the fine, calling it "a pittance," but added that new safety practices at G.M. were necessary. "Changes to G.M.'s internal process of handling recall issues are vital in preventing future tragedies of this nature," he said.

In addition to the $35 million penalty, G.M. faces the possibility of fines stemming from a criminal investigation by the Justice Department, like the one that was brought against Toyota [3] for concealing safety defects. In that case, settled this year, Toyota paid a $1.2 billion settlement.

G.M. is facing other investigations as well, including those from House and Senate subcommittees, a group of state attorneys general and the Securities and Exchange Commission. And hundreds of private claims and lawsuits have been filed against the company.

Mr. Friedman said that automakers must "hear the clear message that they must react immediately to potential safety defects."

He said that the regulatory agency would in the coming months test oversight of G.M.'s inner workings with a sort of safety drill.

"We plan on putting their safety organization through the paces, where we will feed into them potential information on defects," he said, to see how it was disseminated within the corporation and whether it led to appropriate decisions.

But when asked how the new measures would strengthen regulators' ability to detect safety defects on their own, without reliance on the car companies, Mr. Foxx and Mr. Friedman did not reply.

Instead, Mr. Foxx and Mr. Friedman stressed that the threat of bigger civil penalties, if Congress raises the maximum fine, would change corporate behavior.

The safety agency maintains a hotline for consumers to report safety problems, but regulators were unable to recognize a pattern in those reports and failed to initiate a formal investigation. Repeatedly, they responded to car drivers by saying that it did not have the basis to open such an inquiry.

The burden, Mr. Friedman said, was on the car companies.

"The question is not whether or not you're going to get caught," he said. "You're going to get caught; you're going to get found out."

Matthew L. Wald reported from Washington and Danielle Ivory from New York.

[1] http://www.nytimes.com/interactive/2014/05/16/business/17motors-dox.html?&pgtype=article#document/p58

[2] http://www.nytimes.com/2014/04/16/business/gm-chief-cites-new-safety-moves-and-says-repairs-are-now-underway.html

[3] http://www.nytimes.com/2014/03/20/business/toyota-reaches-1-2-billion-settlement-in-criminal-inquiry.html