GM Nearing Criminal Settlement Over Ignition Switch

Updated on
  • Automaker to enter deferred prosecution deal with U.S.
  • Agreement may ease questions of what Barra, executives knew

General Motor Co. is set to settle a criminal probe by the U.S. Justice Department for $900 million over the ignition switch flaw that has bogged down Chief Executive Officer Mary Barra in recalls and investigations since almost Day 1 of her tenure, according to a person with knowledge of the deal.

The accord will be part of a deferred prosecution agreement, people familiar with the matter said, asking not to be identified because the discussions are private. The agreement, which may be announced as early as Thursday, will allow the U.S. to monitor the automaker for three years, according to one of the people.

Mary Barra

Mary Barra, chief executive officer of General Motors.

Photographer: Andrew Harrer/Bloomberg

The U.S. will say GM failed to obey federal laws requiring prompt disclosure of safety problems, and no individuals will be charged, the people said. GM will face a charge of wire fraud, two people said.

Barra became GM’s first female chief executive officer in January 2014. A few weeks later, the switch recalls began and soon became her biggest concern. She was mocked on Saturday Night Live, and GM stock has lost 22 percent of its value since she took the top job. Meanwhile, Ford Motor Co.’s declined half as much and the Standard & Poor’s 500 Index rose 8.5 percent.

Car Recalls

On Thursday, the lead lawyer for accident victims said GM had reached a
memorandum of understanding with 1,385 plaintiffs who “may be eligible to participate in a settlement.” Both the company and victims sent a letter to U.S. District Judge Jesse Furman in Manhattan proposing the accord, attorney Bob Hilliard said in an e-mailed statement. He added that 370 injury cases and 84 wrongful death claims remain.

The settlement may end almost two years of questions about what GM’s executives knew and whether they would be held personally responsible. Lawyers for vehicle owners and injured motorists have speculated whether Barra and others were kept in the dark by mid-level managers or whether they knew of the defect well in advance.

GM, the largest U.S. automaker, recalled 2.59 million small cars to replace a faulty ignition switch, which has been linked to at least 124 deaths. The switch could be jarred into the “accessory” position, shutting off the engine, disabling power steering and brakes and preventing air bags from deploying. GM engineers and lawyers knew about the defect for years before the recall, according to a 2014 study commissioned by the company. Fifteen GM employees were dismissed after the report.

Barra said as recently as June that GM was cooperating with the Justice Department investigation of its handling of the switch defect. Manhattan U.S. Attorney Preet Bharara and the Federal Bureau of Investigation in New York were among those investigating the automaker.

Dawn Dearden, a spokeswoman for Bharara, Adrienne Senatore, a spokeswoman for the FBI’s New York Office, and GM spokesman Jim Cain declined to comment.

Toyota Investigation

Bharara previously led a probe into Toyota Motor Corp.’s attempt to hide safety defects over uncontrolled acceleration, reaching a deal under which the Japanese automaker agreed to pay $1.2 billion to avoid prosecution -- the biggest U.S. criminal penalty for a car company.

Under that deferred prosecution agreement, approved by a federal judge last year, the government agreed not to prosecute Toyota for three years as long as it continued to cooperate with authorities.

Details of a GM settlement were reported earlier by Dow Jones.

GM still faces claims by drivers and passengers hurt in crashes and the families of those killed. The automaker has also been sued by car owners over the decreased value of vehicles because of the recalls. And some people have seen convictions overturned as accidents and deaths blamed on the driver have been exposed as being the result of the faulty switch.

Compensation Fund

Barra announced a compensation fund in June 2014 after GM came under fire from lawmakers for taking more than a decade to recall cars with defective switches.

Worth as much as $600 million, the fund administered by attorney Ken Feinberg gave victims and their families a route to seek compensation largely unavailable to them in the courts. Under bankruptcy law, GM shed liability related to most accidents before it sought court protection in 2009.

Victims have sought unsuccessfully to revisit that rule, and some lawsuits blaming the switch defect for accidents are scheduled for trial in Manhattan federal court in January.

Some of the lawsuits blaming the switch defect for accidents are scheduled for trial in Manhattan federal court in January.

Since emerging from bankruptcy in 2009, GM has announced $17.8 billion in spending on its U.S. factories, creating 6,250 jobs, it said in August.

GM’s second-quarter profit surged, with its adjusting earnings of $1.29 a share beating the average estimate of $1.06 and more than doubling from a year earlier.

— With assistance by Jeff Green, and Margaret Cronin Fisk

(Updates with partial settlement in fifth paragraph.)
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