General Motors Co. has been fined $35 million by the U.S. Department of Transportation for waiting a decade to issue recalls for vehicles with faulty ignition switches that have been linked to 13 deaths.
The fine against the country's biggest car company — the maximum allowed by law, and the largest ever levied in such a case — caps a season of recall reports and reinforces the government's position that failure to disclose car safety issues will not be tolerated.
"This will cause every manufacturer to really scrutinize everything they put in a car," said Jack Nerad, executive marketing analyst at KBB.com. "They'll be even more scrupulous about putting quality into the vehicles they put into the public's hands."
The auto industry has already been on a recall streak. GM has issued about 13 million vehicle recalls this year so far, 11.3 million of them in the United States. Globally, 2.6 million are in connection with vehicles that are at risk for ignition-switch failures.
Toyota, the world's largest carmaker, has recalled almost 3 million vehicles in the U.S. this year, and Ford and Chrysler have recalled more than 1 million each. To date, 2014 has seen almost 20 million auto recall notices, putting it on track to be the highest recall year on record.
Lawmakers said the GM fine sends a message to the auto industry but might need to be larger to make the message heard.
Rep. Fred Upton (R-Mich.), chairman of the House Energy Committee and author of the 2000 law that stiffened penalties for recall violations, said the fine tells automakers, "Nothing is more important than safety."
But Sen. Richard Blumenthal (D-Conn.) called the penalty "regrettably a pittance for GM" and asked Congress to increase the maximum fines for such violations. "The victims deserve stronger justice, and GM deserves harsher penalties," he said.
GM, which last month reported first-quarter net revenue of $37.4 billion, also agreed to what Transportation Secretary Anthony Foxx called "unprecedented oversight requirements" to ensure that future safety problems aren't lost in the company's bureaucracy and are quickly reported to regulators.
Foxx slammed the company but stopped just short of accusing it of causing the fatal accidents. "Crashes happened and people died," he said. "Had GM acted differently, perhaps some of this tragedy might have been averted."
For at least a decade, GM knew about problems with the ignition switch, which when jarred can turn off the engine, disabling the power steering and air bags. But the Detroit company — which includes the Chevrolet, Buick, Pontiac, Cadillac, GMC and Saturn brands — only began recalling vehicles in February.
Foxx said that was too little, too late. Automakers are required to tell the National Highway Traffic Safety Administration of safety-related defects within five days of learning about them.
"The fact remains that GM did not act and did not alert us in a timely manner," Foxx said. "What GM did was break the law. They failed to meet their public safety obligations and today they have admitted as much."
Friday's fine ends the investigation by the NHTSA. But the company still faces an ongoing criminal investigation by the Justice Department, as well as investigations by Congress and the Securities and Exchange Commission.
GM also agreed to "make significant and wide-ranging internal changes" to how it handles safety problems, including "unprecedented and immediate reporting" of potential safety defects it is internally reviewing and broad transparency into such activities for up to three years.
"The fact that GM took so long to report this defect says something was very wrong with the company's values," said David Friedman, acting NHTSA administrator.
"GM must rethink the corporate philosophy [that] … explicitly discouraged employees from using words like 'defect,' 'dangerous,' 'safety-related' and many more essential terms for engineers and investigators to clearly communicate up the chain when they suspect a problem," he said.
GM said it has started reviewing its policies and internal processes "to avoid future recalls of this nature."
"We have learned a great deal from this recall. We will now focus on the goal of becoming an industry leader in safety," Chief Executive Mary Barra said. "We will emerge from this situation a stronger company."
GM said this week that it would take an additional $200-million charge against second-quarter earnings to cover the cost of the repairs. That brings the total of its spending on recalls this year to $1.5 billion, not including the NHTSA fine.
On Friday, GM also announced that it has increased parts production to satisfy the need for new ignition switches for the recalled vehicles, saying it had "parts production running seven days a week on multiple shifts" and expected to have enough new parts by October to finish the recall repairs.
Foxx acknowledged that the maximum-allowed $35-million fine represents an insignificant amount — no more than "a rounding error" — for a company the size of GM. He has asked Congress to increase the maximum fine to $300 million.
"What we cannot tolerate, what we will never accept, is a person or a company that knows danger exists and says nothing," Foxx said. "Literally, silence can kill."
GM is also subject to a NHTSA fine of $7,000 for every day it fails to answer all the agency's questions, which it still has not done, Friedman said.
Clarence Ditlow, executive director of the Center for Auto Safety, said Congress should allow unlimited civil penalties and criminalize such recall-related violations. With the NHTSA investigation settled, the focus shifts to the Department of Justice. Ditlow wants it to levy a fine of more than $1 billion and bring criminal charges against GM officials responsible for the delays.
"People died," Ditlow said. "Justice demands more than a $35-million slap on the wrist to a $100-billion corporation like GM when it kills consumers."
Toyota Motor Corp. got more than that this year. In March, the Japanese automaker agreed to pay a $1.2-billion fine to settle a four-year federal criminal investigation into whether it told regulators in a timely way about the sudden-acceleration problems tied to fatalities on some if its vehicles.
In the agreement with the Department of Justice, the Japanese automaker admitted that it misled U.S. consumers by concealing and making deceptive statements about two safety issues affecting its vehicles, each of which caused a type of unintended acceleration.
Toyota remains engaged in settlement talks over hundreds of civil lawsuits alleging wrongful deaths or injuries, potentially adding hundreds of millions to the tab.
Previously, Toyota agreed to pay an additional $1.6 billion to settle a class-action case brought by thousands of Toyota owners who contended that sudden-acceleration problems damaged their vehicles' value.
Although GM could ultimately incur similar fines, it may be more immune from consumer backlash because its cars are sold under so many brands.
"People don't go into a GM dealership," KBB.com's Nerad said. "They go into a Chevy or a Buick or a Cadillac dealership. So GM is one step removed. You'd be surprised how many people aren't fully aware of which brands GM makes."