Risk & Compliance

GM Settles Ignition Defect Charges for $900M

GM admitted liability for wire fraud and concealing material facts from a U.S. regulator, but the U.S. attorney did not file charges against any ex...
Matthew HellerSeptember 17, 2015

Seeking to move on from a scandal that has tainted its recovery from bankruptcy, General Motors agreed Thursday to pay $900 million to settle criminal charges it concealed a lethal defect in car ignition switches.

In a deferred-prosecution agreement, GM admitted liability for wire fraud and scheming to conceal material facts from a U.S. regulator. The defect, which kept some air bags from deploying, has been linked to 124 deaths.

“The mistakes that led to the ignition-switch recall should never have happened. We have apologized and we do so again today,” GM Chief Executive Mary Barra said in a statement.

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The agreement requires the government to seek dismissal of the charges if GM complies with its terms. The largest U.S. automaker will take a $1.475 billion third-quarter charge in connection with the criminal case, a partial settlement of private litigation with consumers, and a settlement of related shareholder litigation.

“For nearly two years, GM failed to disclose a deadly safety defect to the public and its regulator,” Manhattan U.S. Attorney Preet Bharara said in a news release. “By doing so, GM put its customers and the driving public at serious risk.”

The company disclosed the defect to the National Highway Traffic Safety Administration in 2014 but according to the government, its engineers knew before the defective switch even went into production in 2002 that it was prone to easy movement out of the “Run” position. By the spring of 2012, moreover, GM knew the defect could cause air bags not to deploy, the Justice Department said.

GM ended up recalling a record 26 million-plus vehicles in 2014 but as The Wall Street Journal reports, the safety crisis has “overshadowed years of profits and a resurgence after the company’s 2009 bankruptcy restructuring.”

The Justice Department did not charge any individuals, drawing criticism from lawmakers and others. “We buried our loved ones because GM buried a deadly defect,” Laura Christian, the mother of a teenager who died in a 2005 crash, told Reuters. “And yet today all GM has to do is write another check to escape.”