GM To Pay $900 Million Settlement
General Motors will pay out $900 million to the federal government to settle the case brought by the U.S. Justice Department’s involving faulty ignition switches that affected 2.59 million vehicles. The case charged GM with wire fraud and conspiracy to conceal life-threatening defects from federal regulators. No individuals were charged. The settlement comes just weeks after GM admitted to 124 deaths that were direct results of the defect. Over 4,300 claims were filed, 338 of which were death claims.
In exchange for the payout, the U.S. Department of Justice has agreed to defer prosecution of charges involving the defective ignition switches for three years. During that time, GM will be required to cooperate with federal regulators and establish an independent monitor that will continually review the company’s policies and procedures concerning safety and recalls. If the terms are met, federal prosecutors have agreed to seek dismissal of charges after three years.
“The mistakes that led to the ignition switch recall should never have happened. We have apologized and we do so again today,” said GM CEO Mary Barra in company press release. “We have faced our issues with a clear determination to do the right thing both for the short term and the long term. I believe that our response has been unprecedented in terms of candor, cooperation, transparency and compassion.”
“The worst part of this tragedy is that it was entirely avoidable,” said Troubled Asset Relief Program inspector general Christy Romero, according to Bloomberg Business. TARP bailed out GM in 2009 to the tune $49.5 billion, cash that Romero says, “could have significantly reduced the risk of this deadly defect by improving the key design for less than one dollar per vehicle.”
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Why it matters
General Motors was facing a $1.2 billion federal lawsuit — a figure that would have matched the fine imposed on the Toyota Motor Corporation as a result of the company’s unintended acceleration issues. So, by tacitly admitting to wrongdoing and agreeing to independent oversight, GM has saved itself about $300 million. The $900 million settlement shouldn’t have much impact on GM’s current $48.8 billion market cap, but company shares have taken slight but sharp hit since the announcement.
Despite the enormous payout, GM is far from closing the book on this catastrophe. The company still faces countless unrecognized death and injury lawsuits in which plaintiffs are seeking billions of dollars in damages. It also faces numerous lawsuits from shareholders and owners claiming reduced vehicle values. In addition to the $900 million settlement, GM has already paid out $280 million in death and injury claims and expects that number to increase to $625 million.
GM will have taken quite a hit when all this is resolved, but the fact that the defect could have been easily fixed so much sooner is the real tragedy here. Whatever hit GM takes pales in comparison to those who were seriously injured or lost loved ones as a result of the defect.