General Motors hit with $35 million fine over defective ignition switch

General Motors was hit with a $35 million fine by federal regulators Friday – the highest civil penalty ever levied by the Department of Transportation as a result of a recall investigation.

The Detroit automaker was penalized for failing to report problems with a defective ignition switch installed in the Chevrolet Cobalt, among other GM models, that dismantled the airbags. Thirteen deaths, 42 crashes, and the recall of 2.6 million vehicles globally are connected to the switch defect, and the company faces several class action lawsuits that seek millions.

“They had information and they didn’t tell anyone … crashes happened and people died,” US Transportation Secretary Anthony Foxx said in announcing the fine. “Had GM acted differently, maybe some of this tragedy would have been averted.”

Secretary Foxx would not comment on any possible criminal charges but said the matter is up to the US Justice Department, which is conducting its own investigation in addition to another by the US Securities and Exchange Commission.

With those investigations pending, as well as the class action suits still winding their way through federal court, GM could have to pay billions of dollars over the coming years, according to analysts.

A precedent in the GM case is Toyota, which agreed to pay $1.2 billion in March for a recall of 10 million vehicles.

GM has apologized but not admitted liability. In a statement released Friday, CEO Mary Barra said the company has “learned a great deal” from the recall and “will now focus on the goal of becoming an industry leader in safety.”

Acting National Highway Traffic Safety Administration (NHTSA) Administrator David Friedman said his agency’s investigation showed that the problems were widespread throughout the company. 

“Systemic problems, problems in structure, problems in the ability to react quickly. It is hard to point at one single fault in the system," he said, adding that it was “very clear” that the defective switches were known at all levels of the company “all the way up to executives.”

While the fine is the biggest the DOT has ever levied, $35 million is a barely a footnote on the GM balance sheet. The automaker turned a $3.8 billion profit last year on operations worldwide.

The fine is being framed as a wake-up call to the automotive industry to report defects within the mandated five days of findings. For that reason, the Department of Transportation is turning to Congress to raise the maximum fine available to penalize automakers from $35 million to $300 million.

“It will put all automakers on notice that there will be zero tolerance” for not reporting safety problems, Foxx said.

Those findings are likely to undermine GM’s argument in federal court that the company should be shielded from liability.

Under the 2009 federally mandated bankruptcy and subsequent restructuring, the Detroit automaker agreed to terms that made it immune to any product liability claims for crashes, or other malfunctions, dating before July 10, 2009, when it emerged from bankruptcy. The current recalls affect vehicles spanning model years 2005 through 2011.

The historic fine is accompanied by lengthy oversight requirements that force the Detroit automaker to work closely with NTHSA in coming years.

The company has agreed to provide the agency with full access to its own internal investigation. The agreement also requires GM to submit reports and to meet with agency officials on a scheduled timeline to provide monitoring of the ongoing recall.

GM must also have all repair parts for the recall produced by Oct. 4, and must show it is targeting non-English speakers, and interacting with consumers though the media and its website.

GM vehicle owners are encouraged to call a company hot line, (800) 222-1012, or visit gmignitionupdate.com to learn more about the recall details. The company recommends that, for now, GM owners should use the ignition key only with nothing else on the key ring to ensure safety with the ignition switch.

Among the affected vehicles:

• All 2005-2010 Chevrolet Cobalt

• 2005-2007 Pontiac G5

• 2003-2007 Saturn Ion

• 2006-2011 Chevrolet HHR

• 2006-2010 Pontiac Solstice

• 2007-2010 Saturn Sky