GM to pay $900M to resolve ignition switch probe

David Shepardson, and Melissa Burden

Washington — Federal prosecutors are expected to announce Thursday that General Motors Co. will pay a $900 million fine as part of a criminal investigation into GM’s delayed recall into defective ignition switches in 2.6 million cars, The Detroit News has learned.

GM is expected to be charged with at least two felonies, including wire fraud, for misleading consumers and hiding information from the National Highway Traffic Safety Administration, three people briefed on the settlement said. It also will enter into a deferred prosecution agreement with the U.S. Attorney’s Office in New York over the defect that was linked to 124 deaths, as well as face oversight from an independent monitor. GM will not have to plead guilty as part of the agreement.

NHTSA declined to comment.

The defective ignition switch, mostly installed in Chevrolet Cobalts and Saturn Ions, allowed the key to inadvertently turn off the engine in some vehicles, which disabled power steering and air bags. GM CEO Mary Barra fired 15 employees and disciplined five others last year after an internal investigation showed the automaker largely ignored the problem for a decade.

The $900 million fine is less than the $1.2 billion that Toyota Motor Corp. paid last year after it was charged with wire fraud — because federal prosecutors credited the Detroit automaker with swift and significant cooperation. The government is not expected to announce any criminal prosecutions of individuals, but prosecutors are expected to say the investigation remains open.

The Wall Street Journal reported some details of the settlement earlier.

A spokeswoman for U.S. Attorney Preet Bharara in New York declined to comment, as did GM, which reiterated it is cooperating fully with the investigation. A formal announcement is expected Thursday in New York. Resolving the probe represents a major milestone for Barra, who took over shortly before the scandal exploded last year.

The settlement comes after GM set aside $4.2 billion last year to pay for recall and ignition compensation fund expenses and transformed how it approached safety issues. Barra repeatedly appeared before Congress to address the ignition problems and the automaker came under withering criticism for its approach to safety. Barra blamed a “culture of incompetence and neglect” and pledged never to forget what happened.

Peter J. Henning, a Wayne State University law professor, said the fact that GM cooperated may be why its fine comes in less than Toyota’s. He expects the Justice Department will say it continues to investigate individuals related to the case and that the continuing investigation doesn’t preclude charging individuals.

“GM reacted,” he said. “Once it became known to senior management, they took steps to address it not only with victims, but also with the government. They were much more forthcoming and essentially it created a template on how to cooperate.”

Laura Christian of Harwood, Maryland is the birth mother of Amber Marie Rose, a 16-year-old who was killed in a 2005 crash tied to the ignition switch defect. Christian said she will be greatly disappointed if GM is fined less than Toyota and if nobody from GM is criminally charged.

“This is one of the worst days since Amber died,” Christian said by phone Wednesday night, nearly in tears. “I was really hoping, really, really hoping that the Justice Department would hold GM accountable.”

In May 2014, GM agreed to pay a then record-setting $35 million civil penalty to the National Highway Traffic Safety Administration and make significant safety changes. In doing so, GM admitted it broke the law. It entered into a three-year consent agreement with NHTSA.

Transportation officials said some within GM knew ignition switch problems would turn off air bags in Cobalts as early as November 2009. NHTSA Acting Administrator David Friedman said he had no records indicating Barra knew of the defect, but said that GM engineers, investigators, lawyers and other executives knew of it and failed to act to protect consumers.

The Securities and Exchange Commission, Transport Canada and all 50 state attorneys general also have been investigating GM for nearly 18 months.

Federal prosecutors, aided by the FBI and a federal grand jury, have interviewed dozens of current and former GM executives, lawyers and engineers, including Barra. They also have talked to employees at auto supplier Delphi, which made the ignition switch.

A fund run by compensation expert Ken Feinberg approved compensation for nearly 10 times more than the 13 deaths GM executives reported as the controversy unfolded in 2014. The fund also approved claims for 17 serious injuries and 258 less-serious injuries.

GM is paying at least $1 million in each death claim and gave Feinberg and his staff the final decision on approving or rejecting all claims. It placed no cap on the amount Feinberg could award, but he is not allowed to assess “punitive damages.”

The automaker expects it will spend $625 million in compensation; it already has paid out $280 million in claims.

Joseph Spak, an analyst with RBC Capital Markets LLC, said in a note to investors Wednesday that the firm had been expecting a $1.5 billion settlement for GM with the Justice Department. If the fine comes in smaller, Spak said it would be a “slight positive” for GM and its stock.

Henning said the settlement with the DOJ came quickly for a case such as this.

“It lets GM put it behind it quickly, and that way it becomes exactly what GM wants, which is (to be) yesterday’s news,” he said.

GM also faces hundreds of lawsuits stemming from the faulty part, including 100 U.S. class-action lawsuits and 21 in Canada from owners who say the recalls reduced the value of their vehicles.

The automaker also faces 172 U.S. lawsuits and nine in Canada over injury or death claims; those are separate from the compensation claims. There are also suits pending by shareholders.

The first trial stemming from the dozens of suits filed against GM and consolidated in front of a federal judge in New York is set to start in January. Lawyers are deposing dozens of current and former GM executives, including Barra set for October.