DETROIT — General Motors, beware.
Wednesday’s announcement that Toyota will pay $1.2 billion to avoid criminal prosecution for hiding information in a recall case could be a glimpse into your future. It’s also a warning to anyone selling cars in the U.S.: Although the federal government’s road-safety watchdog doesn’t have big fangs, the Justice Department does.
The National Highway Traffic Safety Administration’s maximum fine for hiding information is $35 million, a pittance to automakers. But the Justice Department can reach deeper into your wallet and hurt your reputation with damning public statements.
Shortly after the announcement, Attorney General Eric Holder issued an apparent warning to GM and other automakers, saying the Toyota deal was “not necessarily the only time we will use this approach.”
General Motors Co., which is facing a federal criminal probe over delays in recalling small cars with a deadly ignition switch problem, has many parallels to the Toyota case.
Toyota got into trouble for withholding information from NHTSA about floor mats that can trap gas pedals and make cars accelerate wildly, and for concealing a problem with sticky gas pedals that can cause unwanted acceleration. According to court records, the company recalled some models for the floor mats while knowing that others had the same problem.
At GM, the company has admitted knowing about the ignition-switch problem for more than a decade, yet it failed to recall 1.6 million small cars until last month. During the wait, at least a dozen people died in crashes because the faulty switches moved out of the run position, disabling power steering and brakes. Air bags also didn’t inflate.
“We now see what GM may be facing,” said Peter Henning, a law professor at Wayne State University in Detroit and a former Justice Department prosecutor. “If you have comparable conduct inside the company, the government is going to come down hard.”
The Toyota payment changes the model for regulating auto safety in the U.S. Before Wednesday, safety issues had been almost the exclusive domain of NHTSA. Now, the government has raised the stakes with criminal actions, Henning said.
“GM has to be concerned what kind of a hit there is going to be to the bottom line,” said Henning, who predicted that GM’s penalty could rise toward $2 billion because its recall delays lasted longer than Toyota’s.
The Toyota penalty is a “game changer” that will force automakers to take notice, said Clarence Ditlow, executive director of the nonprofit Center for Auto Safety. “Until today, automakers faced insignificant fines and no criminal penalties,” he said.
Even with a $1.2 billion penalty, the bigger issue for both GM and Toyota is damage to reputations.
Before a highly publicized 2009 unintended acceleration crash that killed a California Highway Patrol officer and three family members, Toyota was known by all for reliability, and it was gobbling up sales and market share in the U.S.
Since the California crash, Toyota’s U.S. market share has dropped more than four percentage points, to 13.3 percent last month. Today, a single point of market share equals more than 150,000 cars and trucks, the equivalent of millions in profits every year.
Even with the settlement, the ordeal isn’t over for Toyota, and it’s just starting for GM. Both companies still face lawsuits over the recalls, and they will see bad publicity every time there’s a verdict. GM, though, is not liable for legal claims from crashes that occurred before it left bankruptcy in July 2009.