DETROIT (AP) — 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.
The crash triggered the recall of more than 10
million vehicles and raised suspicions about Toyota’s safety. From 2010
through 2012, NHTSA fined the company a total of $66 million for
safety-related violations, further harming its reputation.
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.
And Wednesday’s statements from the Justice Department likely will raise further suspicions about Toyota.

In
court documents, prosecutors said Toyota misled customers by assuring
them that it had addressed the root cause of the acceleration problems,
while knowing that cars outside the recall had the same problems. Toyota
did this to defend its brand image after the California crash, the
documents said.
"In other words, Toyota confronted a public-safety
emergency as it if were a simple public-relations problem," Holder said
Wednesday at a news conference.
Toyota says it has put reforms in place to make sure this doesn’t happen again.
But statements like Holder’s must have GM worried about damage to its brand image and a hit to its stock
price.
The
company has tried to portray itself as transparent, submitting to NHTSA
two chronologies admitting mistakes. Its new CEO has apologized several
times to families of those injured or killed in crashes. The company
has also placed safety in the hands of a single executive and hired
outside legal counsel to investigate its conduct.
Still, in just
one day last week, GM’s stock value fell 5 percent, reducing the total
value of the company by $3.2 billion, according to Barclays analyst
Brian Johnson.
Itay Micheli, an analyst for Citi Research, wrote
that only about one percentage point of Toyota’s market share slide came
from the recall crisis. Toyota blames the drop on an artificially high
market share in 2009 due to high gas prices that boosted sales of its
fuel-efficient models.
"The GM situation is far from an easy call,
but we think the risk of Toyota-like share losses would only come into
play if the headline situation materially worsens," Micheli wrote.
GM’s
brands also aren’t as strong as Toyota’s were at the time of the
recalls. Before bankruptcy, GM cars had a reputation for poor
reliability, although the company has made great strides toward erasing
that.
GM’s recalls, at 1.6 million worldwide, are far smaller than
Toyota’s, so the cost to the company will be far less. GM said
Wednesday it would take a $300 million charge this quarter for the
small-car recall and several others.
Also, Toyota had to recall
models that were on sale at the time. GM has tried to distance itself
from the recalled cars, saying they were made years ago by the old GM,
the one that went into bankruptcy protection.
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. Such claims would go to a trust formed to
settle claims against the pre-bankruptcy company.
However, lawyers
are researching whether they can prove that GM knew about the
ignition-switch problem during the bankruptcy but did not disclose it to
the judge. In that case, the new GM might be liable for older claims.
___
Associated Press Writer Eric Tucker contributed to this report from Washington, D.C.
Copyright 2014 The Associated Press. All rights
reserved. This material may not be published, broadcast, rewritten or
redistributed.