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 Now, Barra must show investors and consumers that the change at the
No. 1 U.S. automaker is real, and goes beyond the steps she ordered
to attack the engineering and managerial lapses that resulted in GM
waiting more than a decade to fix dangerous vehicle defects now
linked to 124 deaths.
GM shares rose modestly on Thursday as investors digested details of
the criminal settlements, for which the automaker will take a $1.475
billion third-quarter charge, including $575 million for private
litigation.
However, GM shares are still trading well below their initial public
offering price of $33, despite Barra's move in March to promise
investors $10 billion in cash and stock buybacks through the end of
next year.
Barra could face new pressure from investors to take more aggressive
steps to lift the company's shares. Meanwhile, Sergio Marchionne,
chief executive of rival Fiat Chrysler Automobiles NV <FCHA.MI> <FCAU.N>,
continues his campaign for a merger of his company and GM - a
proposal Barra and her board have rebuffed.
GM executives would rather focus attention on their ambitious plans
for launching new vehicles with advanced technology. Product
development chief Mark Reuss, speaking to employees on Thursday, hit
that note.
"We are going to deliver vehicles with features that astound and
amaze people," he said, adding that GM's goal is to be a "zero
defects" company.
HUMBLING EPISODE
The settlement caps a humbling episode for a company that once
dominated the global auto industry. The recall scandal battered GM's
reputation in its home market, chopped more than $5 billion out of
the Detroit automaker's profit and helped usher in a new era of
aggressive oversight by federal regulators.
GM disclosed in February 2014 that it failed to tell regulators what
it knew about defective ignition switches that could cause vehicles
to stall, and cut power to the air bags. Before that revelation, GM
was regaining profitability after a federally funded bankruptcy, and
Barra was hailed for breaking one of industry's formidable glass
ceilings to become the first woman to head a major global automaker.
The recall scandal, which engulfed the company just weeks after
Barra took over as CEO in January 2014, put the ills of the
pre-bankruptcy GM at center stage in Washington, in the media and in
the courts. Barra took sharp criticism from lawmakers during four
hearings on Capitol Hill.
But the steps Barra took in response to GM's humiliation paid off.
She set up a compensation fund that paid $600 million to ignition
switch crash victims, appointed a new safety czar to cut through
managerial silos in the engineering organization, shared mountains
of documents with federal investigators and publicly embraced a
scathing internal report by Anton Valukas, chairman of the Chicago
law firm Jenner & Block, that exposed deep flaws in GM's managerial
culture.
All that helped GM secure a settlement that was less onerous than
many financial analysts had expected.
The Justice Department did not charge any individuals, and credited
GM in the deferred prosecution agreement with "terminating
wrongdoers."
CRITICS SPEAK OUT
The deal was also less punishment than some victims' families
thought was deserved.
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Laura Christian, the birth mother of 16-year-old Amber Rose, who
died in a 2005 crash, lamented the lack of individual accountability
in the agreement.
"We buried our loved ones because GM buried a deadly defect," she
said. "And yet today all GM has to do is write another check to
escape."
Barra called the settlement "tough," and said GM would change its
ways. "The steps we took to do the right thing ... persuaded the
Justice Department to defer prosecutions," Barra said during a
televised talk to GM employees on Thursday afternoon. She also
reminded employees, "people were hurt and people died in our cars."
Prosecutors charged GM with wire fraud and scheming to conceal
material facts from a U.S. regulator. The Justice Department's
failure to charge any individuals drew objections from some
lawmakers and industry critics who had pressed for stiffer
penalties.
GM admitted to failing to disclose a potentially lethal safety
defect with the switches that kept some air bags from deploying. It
also admitted to misleading consumers about the safety of affected
vehicles.
The settlement was approved by U.S. District Judge Alison Nathan in
Manhattan during a hearing on Thursday afternoon.
GM also agreed to a partial settlement of private litigation with
drivers, passengers and families over the switches, and a settlement
of related shareholder litigation.
Robert Hilliard, one of the lawyers leading the private litigation
by drivers and passengers, said about 84 death cases and 370 injury
cases would remain unresolved.
In settling with the government, GM entered into a three-year
deferred prosecution agreement that requires an independent monitor
to oversee its recall and safety-related practices. The criminal
charges will be dropped if GM meets its obligations.
U.S. Attorney Preet Bharara did not rule out charging individual GM
employees, but said there are "legal and factual" challenges to
prosecuting them. "The law does not always let us do what we wish we
could do."
GM's $900 million payment will be treated as a penalty, and the
automaker cannot treat it as a deductible expense.
It is less than the $1.2 billion that Toyota Motor Corp <7203.T>
agreed in March 2014 to pay to resolve a similar case alleging that
its vehicles accelerated without warning.
GM shares gained 0.4 percent to close at $31.31 on Thursday.
(Additional reporting by Nate Raymond, Jonathan Stempel, Jessica
Dye, David Ingram and Joseph Ax in New York; Editing by Lisa Von Ahn
and Matthew Lewis)
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