GM Inquiry Sets Up Possible Lawsuit By U.S. Officials

Posted: May 24 2015, 3:50pm CDT | by , Updated: May 25 2015, 2:30am CDT, in News | Latest Business News


GM Inquiry sets up Possible Lawsuit by U.S. Officials
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  • 2014 Recall raises causes alarm.
  • Could be larger than Toyota case.

With a lawsuit looming, General Motors looks to steer into a direction the company can survive. U.S. Attorney Preet Bharara's looking to make sure punishment hits both individual and corporate freedom.

General Motors will likely face federal criminal charges, as well as hefty fines, for an ignition switch failure that resulted in over 100 deaths. Recent information by individual sources involved in the case adds that individual engineers may be prosecuted as well.

According to the Wall Street Journal, engineer Raymond DeGiorgio designed the switch in 2001 but failed to inform the company of a failure to comply with GM standards. Instead DeGiorgio chose to alter the product in secret and did not internally notate the part for replacement for over a decade.

An internal investigation last year and a 315-page report documented negligence on not only the company, but the engineers as well. GM Chief Executive Mary Barra fired 15 employees including DeGiorgio directly following the evidence.

Starting in February 2014, GM was forced to recall 2.6 million vehicles due to slipping out of the run gear and may also cut off safety features like air bags, power steering and power brakes. All dangerous problems when traveling in a busy location or street.

Recalled vehicles included Chevrolet Cobalts and older vehicles. Cobalts faced a 2010 controversy when power steering failure was found in over 1,000 vehicles out of over 900,000. In total, 1.3 million vehicles faced possible steering problems.

The New York Times notes that all the combined problems resulted in one of the nation’s largest recalls with 30 million vehicles by the end of the year.



The charges come on the heels of the Japanese parts supplier Takata Corp., which has recalled nearly 34 million airbags in the past month. Not only is the action the largest in U.S. history, it also sets up a strong court of opinion for the GM trial. The airbag defects included sending metal shards into passengers after a violent deployment.

At first the Takata case was set to appear in a Manhattan U.S. court. Now it seems to be moving to the Department of Justice's fraud division in Washington and Detroit's U.S. court system since the company is based there.

Since the airbag supplier took responsibility for at least six passenger deaths, one may assume the DoJ may take a higher degree of leniency. But should the courts or department do so, they may find citizens angry at the lack of responsibility and transparency from organizational top to bottom.

According to the Times, decisions on where to prosecute GM ended up being based on bankruptcy filing (New York) and the successful case against Toyota. Detroit wanted to be the center due to the automotive hub location, such like the case of Takata, but did not have the jurisdiction moved.

Former U.S. Attorney Anton Valukas’s extensive report mentioned DeGiorgio by name 200 times. The difference in this case versus the 2014 Toyota case is the fact prosecutors have been investigating information about GM employees.

“We are unable to comment on the status of the investigation, including timing," said a company representative in a released statement. “We are cooperating fully with all requests.” Should the prosecution choose to continue, it will only be the second in U.S. history.


Deterrence, Payment, and Punishment

Preet Bharara runs the Manhattan U.S. attorney’s office and feels that action will require a more swift and punitive response. Speaking to the WSJ recently, he said, "The first line of defense is self-policing within the company. The second is regulators."

Since neither division offered safety, Mr. Bharara believes "when all those things have failed, prosecutors come along with the blunt hammer," adding direction action "does get some attention in the board room."

Even after setting up a compensation fund and breaking records with a $35 million civil fine last year, GM could still face an even higher penalty than Toyota’s $1.2 billion. The Detroit News estimates the company has already paid out $93 million so far.

He also admits being aware that public opinion is necessary in promoting the idea of justice on an individual and corporate level. “The issue of how you affect individuals’ behavior and how you affect a company’s policies and procedures are not walled off from each other.”

The department came under heavy fire when corporations and companies faced little repercussions during the Great Recession. Many citizens felt those who helped shape company policy and procedure should face charges. As automotive industry lawsuits gear up, the Department of Justice will have to steer clear of any ill decisions.

During the Toyota case last year, the company deferred persecution and admitted to wrongdoing in not reporting sudden-acceleration problems. However, no employees or executives faced any criminal charges. While mediating and settling the case, U.S. District Judge William H. Pauley reminded prosecutors that “corporate fraud can kill.”

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