U.S. Transportation Secretary Anthony Foxx announced the fine,
which is the maximum the agency can impose. Other investigations
into the automaker's handling of the recall are being conducted by
the federal government and could come with more severe punishments.
It was unclear how those additional probes might be influenced by
Friday's actions by the Obama administration, especially after Foxx
declared: "What GM did was break the law ... They failed to meet
their public safety obligations."
The ignition-switch defect was originally noticed by the largest
U.S. automaker more than a decade ago. But the first recalls began
only in February of this year, despite years of consumer complaints.
Furthermore, the acting chief of the National Highway Traffic Safety
Administration (NHTSA), David Friedman, told reporters that GM
employees ranging from engineers "all the way up through executives"
were aware of the information years before the recall of 2.6 million
He did not name the executives, and said there was no information
that Chief Executive Officer Mary Barra had earlier knowledge about
the problems. Barra took over as CEO in mid-January, becoming the
first female to head a major automaker.
Friedman also slammed GM's "corporate philosophy" and pointed to
internal training documents that discouraged engineers from using
the words "safety" and "defect" when identifying product risks.
Besides announcing the $35 million fine, officials said that GM will
come under closer scrutiny by federal regulators.
The automaker will be required to hold regular meetings with NHTSA
to report on efforts to catch safety problems and it also must give
the agency monthly reports on any emerging defect issues.
Democratic Senator Richard Blumenthal of Connecticut criticized
NHTSA for failing to spot the defect earlier. "There is no question
NHTSA bears part of the blame, a large part," he said.
The faulty ignition switches on Chevrolet Cobalts, Saturn Ions and
other GM vehicles can cause their engines to stall, which in turn
prevents air bags from deploying during crashes. Also, power
steering and power brakes do not operate when the ignition switch
unexpectedly moves from the "on" position to the "accessory"
The fine is far from the end of GM's problems.
Congress, the Department of Justice, the U.S. Securities and
Exchange Commission and several states are conducting their own
investigations, and GM's internal probe is expected to be completed
within the next two weeks. The company is also weighing whether and
how to broadly compensate victims.
Carl Tobias, who teaches tort and product liability law at the
University of Richmond School of Law, said that while the NHTSA
probe is separate from the ongoing criminal investigation, "I think
it plays back on the DOJ investigation and I'm sure they will take
it into account."
He added that GM's admission that it failed to make a timely report
of the ignition defect could increase the company's exposure to
civil lawsuits "principally because people could have gotten hurt in
the interim when GM wasn't making sufficient and timely reports to
[to top of second column]
The consumer group Center for Auto Safety called the $35 million
fine a "slap on the wrist to a hundred billion dollar corporation."
It called on the Justice Department to impose a fine of at least $1
billion on GM.
GM in recent months has been trying to demonstrate that it is taking
quality issues seriously, shaking up its internal safety team and
taking other steps that it says will help protect consumers.
But consumer advocates have accused GM of resisting moves such as
urging owners of the recalled cars to park them immediately until
they are repaired.
Under the steps announced by the government on Friday, GM also
agreed to take part in "unprecedented oversight requirements,"
including providing full access to its internal investigation and
notifying the government of any changes to GM's effort to make
repair parts, the government said.
Transportation Secretary Foxx and NHTSA also used Friday's
announcement to push Congress to reset the maximum financial penalty
to $300 million from $35 million. Prospects for passage of such
legislation this year are uncertain.
GM shares closed down slightly more than 1 percent at $34.00 on
Friday, recovering somewhat from a drop of 2.5 percent earlier in
In a statement, GM confirmed it would pay the fine.
"We are working hard to improve our ability to identify and respond
to safety issues," said Jeff Boyer, vice president of Global Vehicle
Safety, who is assigned to integrate safety policies across the
Friday's announcement on GM came a day after the automaker announced
five separate recalls covering nearly 3 million vehicles worldwide
because of tail lamp malfunctions and potential faulty brakes.
(Reporting by Ben Klayman and Bernie Woodall in Detroit, Richard
Cowan and Eric Beech in Washington, and Jessica Dye in New York;
Writing by Susan Heavey and Richard Cowan; editing by Bill Trott,
Karey Van Hall and Matthew Lewis)
[© 2014 Thomson Reuters. All rights
Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.