Justice Department investigators have identified criminal wrongdoing in General Motors' failure to disclose a defect tied to at least 104 deaths and are negotiating what is expected to be a record penalty, according to people briefed on the inquiry.
A settlement could be reached as soon as this summer. The final number is still being negotiated, but it is expected to eclipse the $1.2 billion paid last year by Toyota for concealing unintended acceleration problems in its vehicles, said the people, who did not want to be quoted because the negotiations weren't complete.
GM's eagerness to resolve the investigation -- a strategy that sets it apart from Toyota, which fought prosecutors -- is expected to earn it so-called cooperation credit, one of the people said. That credit could translate into a somewhat smaller penalty than if GM had declined to cooperate.
Former GM employees, some of whom were dismissed last year, are under investigation as well and could face criminal charges. Prosecutors and GM are also still negotiating what misconduct the company would admit to.
For more than a year, federal prosecutors in New York and the FBI have homed in on whether the company failed to comply with laws requiring timely disclosure of vehicle defects and misled federal regulators about the extent of the problems, the people who were briefed on the inquiry said. The authorities also examined whether GM committed fraud during its bankruptcy proceedings in 2009 by not disclosing the defect.
An agreement with the Justice Department would represent a crucial step as GM tries to move past a difficult year that damaged its reputation for quality and safety as well as its bottom line.
"We are cooperating fully with all requests," the automaker said in a statement. "We are unable to comment on the status of the investigation, including timing."
In February 2014, the automaker began recalling 2.6 million Chevrolet Cobalts and other small cars with faulty ignitions that could unexpectedly turn off the engine, disabling power steering, power brakes and air bags. The malfunction prompted a wave of additional recalls by GM for various safety issues. All told, GM recalled more than 30 million vehicles worldwide last year -- a record for the automaker.
GM's expansion of its recalls after the disclosure contrasted to the approach of Toyota, which kept cars on the road despite signs of trouble, a decision that underpinned the criminal case against it.
The Toyota case also led prosecutors in New York, under U.S. Attorney Preet Bharara, to secure control over the subsequent GM investigation as well. While federal prosecutors in Detroit wanted to run the investigation, people briefed on the matter said, Bharara's office pointed to its experience in the Toyota case and noted that GM's bankruptcy filing came in New York.
The penalty from Bharara's office would be the latest in a long line of expenses for GM.
The company has spent an estimated $3 billion on recalls and other safety issues in the past year, including setting aside $600 million to compensate switch-related accident victims and their families. In addition, GM paid a $35 million penalty to the National Highway Traffic Safety Administration, the federal auto safety regulator, for failing to report the switch recall in a timely manner. The company has been required to report regularly to regulators about its safety practices since last May.
A penalty exceeding Toyota's penalty last year would be the largest levied against any automaker by the Justice Department. In the Toyota case, the agency agreed to defer prosecuting the Japanese automaker for wire fraud if it complied with a continuing review of its safety practices by regulators. If Toyota meets all conditions set by the government for three years, the charge could be dismissed.
It is unclear whether GM will also receive a deferred-prosecution agreement, or if prosecutors will force it to plead guilty to a crime. A guilty plea would carry the symbolic weight of making GM a felon. Even if it reaches an agreement with the Justice Department, GM still faces numerous consumer fraud investigations by state attorneys general, and numerous wrongful-death and personal injury lawsuits.
For Ken Rimer, whose 18-year-old stepdaughter, Natasha Weigel, died in a 2006 Chevrolet Cobalt crash, some recognition from the Justice Department that GM's actions rose to the level of criminal wrongdoing would offer some peace of mind because it might prevent similar tragedies.
"Is it going to be closure? No," he said. "But it's going to be a little bit of justice."
A Section on 05/24/2015