Last month, General Motors recalled 1.6 million vehicles due to a potentially catastrophic problem with their ignition switches. Seems that if you insert a heavy key ring into the ignition in Chevy Cobalts and HHRs, Pontiac G5s and Solstices and Saturn Ions and Skys made from 2003 to 2007, the switch can slip into the wrong position--causing the car to stall. In the process, it can also disable the electrical system and air bags. At least 23 accidents, including 13 deaths, have been blamed on the defect. It turns out that GM knew about this as early as 2004--but didn't notify regulators about it. Now Bloomberg News reports that according to a Justice Department source, GM is staring down the barrel of a federal criminal investigation.
The inquiry is focusing on whether GM, the largest U.S. automaker, violated criminal or civil laws by failing to notify regulators in a timely fashion about the switch failures, said the person, who asked not to be named and isn’t authorized to discuss investigations. GM shares fell the most in two years.
The U.S. Attorney’s office in the Southern District of New York is leading the investigation. James Margolin, a spokesman for that office, declined to comment, as did Emily Pierce, a Justice Department spokeswoman in Washington.
Reams of internal GM documents show that in the decade since GM learned about the ignition problem, it made numerous unsuccessful attempts to fix it. According to
the New York Times, an engineer actually proposed a fix--but it was scrapped. The most GM ever did was issue a bulletin to dealers advising owners to take additional items off their key chains. It was only in late 2013, when it was clear beyond all doubt this defect was killing people, that GM decided to act. GM is conducting its own internal probe headed by Anton Valukas, the former U. S. Attorney for Northern Illinois and the bankruptcy trustee for Lehman Brothers.
This comes on the heels of a demand from the NHTSA that GM give a full accounting of what actions it took after it learned about the recall, as well as investigations in both the Senate and the House. The NHTSA is in the soup for this as well. Despite receiving 260 complaints over 11 years about the cars just turning off without warning, the agency didn't do anything.
Although most of these vehicles are from the "old" GM, an analyst with Consumer Reports told NPR yesterday that new GM could get hit with a lot of shrapnel.
"GM is a really a very special case because there really is an old GM and a new GM," says Jake Fisher, with Consumer Reports. He says the Cobalt is a sign of how bad the old GM was.
"It wasn't pretty. We weren't fans of the Cobalt. It was [an] uncompetitive vehicle that wasn't reliable."
Fisher says the company has improved tremendously in the last several years, but that may not matter.
"The vehicles of the old GM, which is ... the majority of the fleet out there, those bad experiences are having with those vehicles is going to make them not want to give the new GM a chance," he says. "Forget about the recall. Even in the best situation [if it's] not a very good car, why would you want to come back to GM."
The reputational damage may not be GM's only worry. It may be looking at a severe hurt in the wallet. The NHTSA could fine GM as much as $35 million, the highest such fine ever imposed, if it determines GM waited too long to issue a recall. And that's before we even talk about any penalties that could issue from the criminal probe.
Stay tuned.