According to Reuters, General Motors Co agreed last Thursday to pay $900 million to settle criminal charges related to the botched recall of millions of vehicles equipped with faulty ignition switches.
Market Reacts to GM Settlement
While GM shares are still trading well below their initial public offering of $33, they did rise modestly after news broke of the criminal settlements. The case will leave GM with a $1.475 billion third-quarter charge which includes $575 million for private litigation.
Sergio Marchionne, chief executive of rival automaker Fiat Chrysler Automotive NV, has continued to push for a merger of his company with GM despite being rebuffed by Barra and her board. Instead, GM executives appear to be focused on taking steps to lift the company’s shares through launching vehicles with advanced technology.
According to GM’s product development chief, Mark Reuss, “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.
Details of the Ignition Switch Recall
In February of 2014, GM disclosed that it had failed to inform regulators about the defective ignition switches on their vehicles. These switches could malfunction, causing the vehicles to stall, and cutting power to the air bags.
The scandal occurred just weeks after Barra took over as CEO in January of 2014. It put her and the company in the spotlight of Washington, the media, and the courts. Barra endured harsh criticism during her hearings on Capitol Hill.
After a number of hearings, Barra agreed to work with Kenneth Feinberg and set up a victims’ compensation fund for individuals who had suffered injuries or lost loved ones due to the faulty switches.
These steps helped GM to secure a settlement that was far less expensive than many analysts expected. Instead of charging individuals, the Justice Department allowed GM, through the deferred prosecution agreement, to “terminate wrongdoers.”
Criticisms Over GM Settlement Payout
Though the price of the settlement seems astronomical, many feel that it was not severe enough.
Amber Rose was 16 when she was killed in a crash caused by the defect. Her mother lamented the lack of individual accountability. “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 disagrees, stating that the settlement was “tough,” and that GM would change its ways.
GM admitted that it had failed to disclose a potentially lethal safety defect that prevented some air bags from deploying and also mislead customers about the safety of affected vehicles. GM was charged with wire fraud and scheming after they attempted to cover up these issues. Law makers and industry critics objected the Justice Department’s decision not to charge individuals.
GM also agreed to a settlement with private litigation for drivers, passengers, and families affected by the faulty switches.
One provision of the GM settlement with the government requires that an independent monitor oversees its recall and safety-related practices for the next three years. If GM meets its obligations, the criminal charges will be dropped.