By Haddon Libby
Price fixing by parts suppliers to automakers has and will lead to more jail sentences than auto defects that have killed hundreds of Americans. In fact, it is unlikely that anyone will go to jail despite the intentional cover up of defects that have led to the deaths.
Congress imposed a $35 million cap on fines that it can impose for delayed recalls by auto manufacturers. The Obama Administration is seeking to change the law so that prosecutors can imprison auto executives who intentionally delay recalls on unsafe vehicles that lead to deaths. This is being met by a cool response on Capitol Hill. Change in the law is being suggested in response to the most recent “criminal wrongdoing” case by General Motors. GM management covered up defects in more than 2.3 million vehicles over an eight year period that caused some cars to power off while moving. At least 107 people died as a result.
It is expected that no one from General Motors will go to jail despite knowingly causing these deaths over nearly a decade. Instead, General Motors will “voluntarily” agree to settle criminal wrongdoing charges by paying a fine that is expected to exceed the $1.3 billion paid by Toyota last year. The U.S. Justice Department states that General Motors’ will earn “cooperation credits” that will reduce their fine for assisting in an expeditious case resolution. The decade delay and intentional cover-up by management seems to have been ignored.
In related news, the National Highway Transportation Safety Administration (NHTSA) has stated that General Motors paid their maximum $35 million fine on this case in a timely manner. No mention is made of the decade long delay.
Could it be that General Motors is working hard at putting this problem behind them because it is hurting car sales and their stock price?
Toyota had a similar problem last year leading to a $1.3 billion settlement. That fine related to their cover-up of a design flaw that caused acceleration pedals to get stuck under floor mats. The defect killed five people before Toyota recalled 12 million cars.
General Motors’ ignition switch problems mirror problems at Ford in 2000 that led to at least 65 deaths and the recall of over 3.5 million vehicles made between 1983 and 1995. No one went to jail then either.
Honda recently paid two $35 million fines. The first was because of their failure to report 1,729 deaths and injuries to the NHTSA from 2003 to 2014. Honda also failed to report accurate results for warranty claims and customer satisfaction surveys. One of the things that proper reporting by Honda would have caught were the airbag problems by parts maker, Tanaka, that caused death and injuries.
Honda’s cover-up also caused you and me to feel that their cars were safer and more reliable than they actually were. This type of reporting is required by law due to Ford and Firestone failing to report 270 deaths as a result of tire tread separation twenty-five years ago.
For comparison, recent price collusion against automakers by 33 Japanese parts makers has led to $2.4 billion in fines and scores of jail terms. The cover-ups of manufacturing defects that led to a comparable amount in fines and hundreds of deaths have led to no jail terms. If there was ever an example of what is wrong in America, this is it.
Last week, I started a Corporate Cannibal list that consists of companies that treat their consumers and/or employees in potentially illegal and/or unethical ways. Let’s add General Motors, Toyota, Honda and a bunch of Japanese parts manufacturers to that list.
Haddon Libby is Managing Partner of Winslow Drake, an investment advisory practice and co-founder of ShareKitchen. He can be reached at hlibby@winslowdrake.com.
