General Motors

The Feds Take General Motors on a Rough Ride Over SwitchGate

DOJ will pocket the massive criminal penalties it's about to impose

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Boy and his Cars
Philippe Put / Foter / CC BY-NC

General Motors' joyride with the feds might finally be coming to a screeching halt and a rough ride about to begin. The New York Times reported recently that the Justice Department is gearing up to slap a record, billion-dollar-plus fine on the company for criminal wrongdoing in connection with the Chevy Cobalt's defective ignition switch. The defect has been linked to at least 104 deaths. But if similarly massive fines against Toyota for its suddenly accelerating cars are any indication, GM's penalty might prove to be less of a bonanza for GM drivers and victims than for the Justice Department itself.

GM launched its Chevy Cobalt—along with six other models—in 2005 with an ignition switch that some of its engineers knew at the time didn't meet the company's torque or tightness specifications. An accidental bump would push the key into the "accessory" or "off" position, shutting down the engine of the moving vehicle and disabling the airbags if it crashed. But these engineers didn't think this would pose a big safety issue because the car could still be maneuvered out of harm's way and hence did not alert others at GM.

It wasn't until last year—five years after bankruptcy—that company higher ups, at least per GM's story, got to the bottom of things and reported the connection between the faulty switch and the crashes involving non-deploying airbags, and recalled some 2.6 million vehicles. What took so long? GM missed the connection in part for the same reason that NHTSA (National Highway Traffic Safety Administration), which also conducted several investigations into the crashes, missed it: The accident rate of these cars was no greater than peer vehicles so they attributed the crashes to driver error and not any malfunction in the car.

By the time GM figured things out, it had already obtained a liability shield from the federal government as part of a massive bailout, protecting the auto giant from lawsuits involving personal injury/wrongful death and diminution of value claims. (The latter, which assess loss of value experienced by individual owners because of diminished resale value of the overall class of cars, are usually the biggest exposure for automakers in such situations, according to University of Richmond's George Hoffer). GM has established a fund to pay families and victims for the personal injury and wrongful death, but it is using this shield against diminution of value claims.

In the Cobalt's case, at least some GM engineers knew about the problem a long time ago. Compare that to Toyota, where the link between any engine or software malfunction and Toyota's suddenly accelerating cars was never conclusively established.

Still, because Toyota did not enjoy a liability shield, it coughed up an undisclosed (but surely massive) amount last year to settle all the injury and death claims against it after it became clear that an Oklahoma jury was getting ready to award hefty punitive damages to one victim. In addition, it paid $1.6 billion for economic losses to Toyota owners.

But the real kicker was the further $1.2 billion that Toyota handed over to the Justice Department in criminal penalties, the first automaker ever forced to do so. Why did DoJ impose these penalties when no one could find any clear evidence of any malfunction? Because it rummaged through Toyota's internal communications and found that its engineers had theorized that a "sticky pedal" might be the culprit, but this wasn't immediately disclosed to the feds.

Now DoJ is getting ready to impose even bigger fines against GM. It is possible that, unlike in Toyota's case, investigators have found hard evidence of an elaborate cover-up on GM's part. Maybe GM's top executives knew about the connection between the defective switch and the crashes earlier than they have let on. Maybe they thought it would be cheaper to pay victims than delay the launch of the vehicles pending the installation of new ignitions. If that turns out to be the case, the company should be prosecuted in court and should lose its liability shield. Or it is possible that the feds are going after GM on grounds as frivolous as they used to shake down Toyota.

Time will tell, but one thing is almost certain: Either way, the penalties will do little good to anyone besides federal bureaucrats.

In Toyota's case, the Justice Department put the entire $1.2 billion it collected from the carmaker in criminal fines—along with the$1.7 billion it received in the Bernie Madoff case—into its notorious civil asset forfeiture fund, an all-purpose slush fund where the department also parks assets seized during illicit drug raids from people never accused of a crime.

Although Toyota's victims had the option of filing copious amounts of paperwork to collect additional damages for economic losses relating to accelerating vehicles, it is unclear how many of them actually did so. (My queries to DoJ went unanswered.) What is clear is that the forfeiture program's operating expenses not related to any kind of victim payoff experienced a $1.3 billion boost in 2014—as per page 8 of this report.

GM's payout will no doubt go into the same fund, and be likewise used for DoJ's expenses, raising all kinds of troubling questions about the perverse incentives this creates for the Justice Department to criminalize future investigations.

Some consumer activists argue that what matters is not where the money goes, but that GM is forced to pay it so that in the future it makes instant and full disclosure about vehicle defects rather than endanger the driving public by dragging its feet. Maybe. But every dollar that GM pays the feds is one less dollar that is has to invest in improving vehicular safety at competitive prices.

The Obama administration should never have bailed GM out. And if it did, it should never have handed it the liability shield. But letting unaccountable bureaucrats shake down the company in the name of accountability now might do more harm than good to drivers.

This column originally appeared in The Week.

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  1. All this confirms my first impression of the bailout; “GM, the Union, AND the Obama Administration?.now there’s a combination just FULL of suck”

    1. misspelled last word….

  2. All those many billions we taxpayers gifted GM in that recent huge free cash handout are really paying back big time!

  3. Let’s criminalize engineering! Who needs this “innovation” bullshit anyways…

  4. US cars have been designed by congressmen and econazi lobbyists for the past three decades. And the economic crashes and depressions that prompt shoddy production have everything in the world to do with prohibitionism, asset forfeiture and men with guns looking for taxes to collect. Some would say Congress has a hand in that as well.

    1. That’s pretty much the size of it.

    2. Four decades… or you missed what happened in the mid 1970s…

  5. The DoJ is largely an extortion racket, these days. They’re just giving the banks a little time to regain their strength. They at least know not to kill the host.

  6. Atlas Shrugged was such a fantasy novel. Where did she come up with such tripe?

    1. Obama and Hillary can explain it to you in words short enough for you to understand…. maybe.

  7. What? The victims were totally compensated when the DoJ collected those fines because the victims are people, and the people are the government! Its irrefutable…

    Whenever the feds get involved and collect their fines, no one bothers to ask how it actually helps the people who are victims. But that’s the same in many criminal cases where victims don’t see a penny, but the government extorts all kinds of fines and fees.

    I’m confused as to under what basis the DoJ can go after car companies for defects and collect fines in the first place. It seems like actual individuals should be charged with an actual crime, and otherwise, if its an issue of civil liability, it has nothing to do with the government. But because the government regulates, it gets to claim it was wronged because they weren’t told immediately after some engineer was spitballing in an email about what the problem may have been…

    1. Yeah, but the DoJ bureaucrats have REALLY nice desks now.

  8. But if similarly massive fines against Toyota for its suddenly nonaccelerating cars

    I know it’s Shikhatown but seriously, wtf…

    1. Yeah, I was going to bitch about the same thing.

      Its a recurring theme: the uncritical regurgitation of discredited narratives, which oddly all come from the same general precincts: statists, collectivists, and their bootlickers.

      Stop that, Reason writers. Just, stop it.

  9. GM launched its Chevy Cobalt?along with six other models?in 2005 with an ignition switch that some of its engineers knew at the time didn’t meet the company’s torque or tightness specifications.

    I find this hard to believe. I rented a Chevy Cruze not long after they hit the market. That thing was such a horrible piece of shit the proposition that “automotive engineers” were involved in its design or production is ludicrous.
    Everyone responsible for that car should be flayed alive and burned at the stake.

    1. I had a Chevy Cobalt inflicted upon me as a rental once. It felt like a toy. Shitty, cheap plastic everywhere, steering wheel that felt completely disconnected from the wheels, and an accelerator that wasn’t worthy of the name. What a complete piece of shit.

      1. I really can’t comprehend how so many people test drove that piece of shit and thought to themselves “Sure, I’ll drop 15k on this turd. It’ll polish up.”

  10. So let me get this straight. Obama gives millions to GM to ” save it from bankruptcy” and obviously win the 2012 election , but now his administration is going to impose crippling penalties on GM that will likely push them back into bankruptcy. If that happens, I hope finally voters will realize the government “bailing out businesses” is about political benefit and they actually do not care about the companies or its emplyees. In this case, the bailout was to shore up the union vote, since Obama let the non-union subsidiary, Delphi collapse. No more Delphi electronics is GM cars.

  11. uncritical regurgitation of discredited narratives

    If you can’t believe Sixty Minutes…

    1. +1 NBC review of Chevy “sidesaddle” gas tanks – NOW WITH MOAR IGNITERS ATTACHED!

  12. AN enginer’s speculation is not knowledge. And the eventin question could not be repliacted by the govt safety board, which indicates that they are incompetent or that the event was rare. The event was NOT simply due to the lock’s friction, but required a heavilly loaded keychainanda keywith an elongated hole. I think any good lawyer could make the DOJ look like greedy bastards in court.

  13. Wait – those ignition switches? I thought they DIDN’T build that.

    I haz a confyooz.

    1. I think they’re actually assembled in mexico, so in this case you’d actually be right.

  14. FYI, techs have known GM ignition switches (not just the cobalt, but literally all of them) are garbage. Without actually looking at repair orders, I can tell you at least 50% of no start/stall complaints with a GM vehicle wind up being the ignition switch; 40% are bad fuel pumps, and probably 10% just some random bullshit.

    I can’t believe they’re getting away with only accepting responsibility for the Cobalt, and only back to 2005. It’s been an issue since at least 2000.

  15. Fuck the ignition switches, I just want to see Rick Wagoner penniless and living in a cardboard box Chevette.

    1. That’s harsh. A Chevette is several steps down from a cardboard box.

  16. If it doesn’t matter where the money goes, then it should go to me.

    1. What difference does it make? —- Hillary.

  17. Just spitballing here, but as an unfortunate (ok, moronic) owner of a Cobalt, do I have standing to sue the Obama Administration/DoJ for issuing GM a liability shield, and then fining GM an enormous amount and keeping the money for themselves? How does the government (besides FYTW) have the right to give away my rights to sue?

    1. It’s good thing I swallow my coffee before reading this comment.

      On a serious note: I suspect Sovereign Immunity is the reason you can’t sue.

      1. swallowed, not swallow.

    2. “How does the government (besides FYTW) have the right to give away my rights to sue?”
      Why ask a question and answer it in the middle?

  18. Same as when government demands compensation for environmental harms, but then diverts the money to its own unrelated purposes.
    Just like selling the Chippendale for firewood.

  19. Maybe from now on anyone subsidized by the FEDs can get a get out of jail free card. Like illegals, me rapists, all felons since if you go to jail the government is paying for you. Hmm ? Not a lawyer, but I ‘m sure they are smart enough to figure it out.

  20. This one made me puzzle a little over “fines” in general…
    I can understand a deterrent effect or logic for speeding or parking in the wrong place, but a fine for negligence? It’s a punishment, but so far removed from the inciting event that its effect or leverage has got to be microscopic!

  21. Google pay 97$ per hour my last pay check was $8500 working 1o hours a week online. My younger brother friend has been averaging 12k for months now and he works about 22 hours a week. I cant believe how easy it was once I tried it out.
    This is wha- I do…… ?????? http://www.jobnet20.com

  22. Imposing a fine on GM — new or old — wins the Triple Crown for disgraceful miscarriages of justice. It penalizes the innocent (unknowing shareholders), provides compensation to the uninjured (federal bureaucrats) and lets the guilty (reckless executives) escape any punishment at all. The individuals in management who conspired to hide this dangerous defect should not be allowed to hide behind a corporate veil, but instead face charges of negligent homicide. 109 counts. So far. THAT would be real justice. Make the sentences for those convicted run consecutively and there would undoubtedly be few such incidents in the future.

  23. Google pay 97$ per hour my last pay check was $8500 working 1o hours a week online. My younger brother friend has been averaging 12k for months now and he works about 22 hours a week. I cant believe how easy it was once I tried it out.
    This is wha- I do…… ?????? http://www.www.jobnet20.com

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