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Published: Sunday, 4/6/2014 - Updated: 3 months ago

Congress raises threat of jail time, stiffer fines in General Motors hearings

Senator questions fees’ effectiveness

BLOOMBERG NEWS
Sen. Claire McCaskill referred to the largest civil fine allowed —$35 million — while questioning GM’s chief. Sen. Claire McCaskill referred to the largest civil fine allowed —$35 million — while questioning GM’s chief.
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WASHINGTON — Higher fines and jail time are being considered by lawmakers who grilled General Motors Chief Executive Officer Mary Barra over why it took years to recall 2.6 million cars for faulty ignition switches.

The questions of what GM and regulators knew and when are bringing together members of Congress who, while agreeing on little else, are rallying around images of constituents who died in the defective cars. Congress passed laws in 2000 and 2010 after the unintended-acceleration recalls by Firestone Tire and Rubber Co. and Toyota Motor Corp. that toughened sanctions while stopping short of broad criminal penalties.

“Is $35 million enough?” asked Sen. Claire McCaskill (D., Mo.), referring during a hearing Wednesday to the largest civil fine allowed for not reporting defects. “I mean, is that really a deterrent to companies like General Motors or Toyota or Chrysler, or any of the companies?”

Henry Waxman, the top Democrat on the U.S. House Energy and Commerce Committee, introduced legislation that would increase penalties for failing to disclose defects. It would impose new fees on automakers starting at $3 per vehicle to boost funding for the U.S. National Highway Traffic Safety Administration.

Senate legislation introduced by Democrats Edward Markey of Massachusetts and Richard Blumenthal of Connecticut, who said Wednesday that GM could face “criminal liability,” would also mandate greater disclosures of industry data.

The prospects for criminal penalties increased after the Justice Department last month got Toyota to agree to pay $1.2 billion to settle a four-year criminal probe into whether it hid safety defects related to uncontrolled acceleration.

“There needs to be a change in the NHTSA statute so the failure to do a recall on a knowing and willful basis is a criminal violation,” said Joan Claybrook, a former agency administrator who is now a consumer-safety advocate. “If you’re responsible for that, you go to jail.”

While some criminal penalties were included in the Transportation Recall Enhancement, Accountability, and Documentation Act that emerged in 2000, so many loopholes and conditions were added in the final law that NHTSA has never used its authority to refer a car company to the Justice Department, Ms. Claybrook said.

Senate Judiciary Committee Chairman Patrick Leahy (D., Vt.), said Thursday it’s too early to say whether criminal penalties should be raised. GM will face some liability under current law, he said.

General Motors CEO Mary Barra listens as she is grilled during a hearing on Capitol Hill Wednesday. General Motors CEO Mary Barra listens as she is grilled during a hearing on Capitol Hill Wednesday.
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The dominant questions among lawmakers are why GM, the largest U.S. automaker, allowed a substandard ignition switch into production and then passed up opportunities to fix or recall the part after consumers and dealers complained about cars stalling when they bumped keys or went over rough roads.

“From where I sit, it looks like GM is not forthcoming with the American people, who bailed them out,” Sen. Dean Heller (R., Nev.) said at the subcommittee hearing Wednesday referring to the $50 billion government bailout and bankruptcy reorganization for GM in 2009.

Ms. Barra has pledged to appear before the panel again once GM’s internal probe is complete, Mr. Heller and Ms. McCaskill said.

Congress is also targeting NHTSA, which chose not to open a formal defect investigation in 2007 after reviewing air-bag data, and again in 2010 after a special crash investigation report was filed.

Acting Administrator David Friedman told House and Senate committees this week that the agency would have acted decisively if GM had provided then some facts that are now just coming out.

NHTSA’s primary weapon under the law is the ability to issue a civil fine of as much as $35 million. That would be less than 1 percent of GM’s $5.4 billion in net income last year.

“Whether it’s a question of is $35 million regarded by some automakers as simply a cost of doing business — that can certainly be a conclusion that some may draw,” Transportation Department Inspector General Calvin Scovel told a Senate panel Wednesday.

Regulators supported previous legislation that would have increased the maximum fine to $300 million, Mr. Friedman told the same panel.

“When we find evidence that automakers have not acted in a timely manner we will fine them to the maximum extent allowed by law,” he said.

While congressional aides agree $35 million isn’t enough, lawmakers are more likely to raise civil fines to the $50 million range than something dramatically larger, said Henrietta Treyz, an analyst at Washington-based Height Analytics who tracks legislation.

“Nobody in D.C. really wants to hurt the auto manufacturers,” Ms. Treyz said.

With the Toyota sanction available to U.S. prosecutors, “it might be unclear as to why the government would need new authority to seek increased penalties,” said Wade Newton, spokesman for the Alliance of Automobile Manufacturers, a Washington-based trade group representing 12 companies including Toyota, GM, and Ford Motor Co.

New legislation will certainly be drawn up, and the Justice Department probably will tell lawmakers there’s a real need for a culture change in the industry, said Glen Donath, a former federal prosecutor who is now a partner with the law firm Katten Muchin Rosenman in Washington.



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