GM agrees to pay $1.3 billion fine for ignition switch recall scandal

General Motors has agreed to a pay a US$900 million ($1.3 billion) fine to the US government for covering up a known defect with some of its ignition switches.

In exchange, the US Attorney’s Office has agreed to defer prosecution in this case for three years, after which the government will close the case so long as GM has met all the terms and conditions of the deal.

These include an undertaking to “continue co-operating with the federal government and obey all laws” and establishing an independent monitor to review the company’s safety and recalls policies and processes, as well as pay the fine.

The company has also agreed to setup a compensation fund that’s expected to pay out around US$575 million ($800 million) in damages arising from 1380 civil lawsuits arising from deaths and injuries.

Above: Saturn Sky roadster.

This settlement relates to a faulty ignition switch that was installed in various US models, including the Chevrolet Cobalt and HHR, Pontiac G5 and Solstice, and Saturn Ion and Sky.

Keys in these switches would sometimes jump from the on position to off whilst the car was running, disabling the car’s various safety systems, including its airbags.

In an address to employees overnight, Mary Barra, GM’s CEO, said: “I have said many times how sorry I am for what happened. On behalf of all of us, I have apologized to the families who lost love ones and to those who were injured. I do so again today.

We let these customer down in this situation. We didn’t do our jobs. As part of our apology to the victims, we promised to take responsibility for our actions. So we accept the penalties being announced today because they are part of being held accountable.”

According to the US Department of Justice, GM “admits that it failed to disclose a safety defect to NHTSA (National Highway Traffic Safety Administration) and misled US consumers about that same defect”, and it recognises that at least 15 deaths have occurred due to its faulty part and processes.

Above: Chevrolet HHR.

Engineers at GM knew that the switch was defective before it went into production in 2002. From 2004 onwards problems with this ignition switch were noticed by customers, journalists and other GM employees.

It was decided to “simply promulgate an advisory to dealerships with tips on how to minimise the risk of unexpected movement out of the Run position”, while a “simple improvement to the head of the key that would have significantly reduced unexpected shutoffs at a price of less than a dollar a car” was also rejected.

At the same time, the company publicly acknowledged problems with the switch, but assured the owners, buyers and regulators that it wasn’t a safety issue.

From the second quarter of 2012, GM began investigating the non-deployment of airbags in certain accidents involving its vehicles and learnt that the root cause was this faulty ignition switch. Although engineers, supervisors and attorneys were, by now, aware of this issue, it took a further 20 months before GM informed the authorities.

All up, the company has recalled 2.6 million cars over the issue.

As Automotive News points out, today’s settlement doesn’t cover hundreds of other injury and wrongful death claims. Nor does it cover separate claims brought against the company for lost resale value, or at least 31 deaths and 244 injuries that took place prior to GM’s 2009 bankruptcy.

Cover image: Mary Barra, GM CEO, addresses staff at a town hall meeting about today’s settlement with the US Department of Justice.