According to the New York Times, Federal regulators on Friday served General Motors a $35 million fine, the maximum allowed and largest ever on an automaker. According to Transportation Secretary Anthony Foxx, “what GM did was break the law.” The regulators found “deeply disturbing” evidence over GM’s lack of concern for safety issues. It was reported earlier in the week that GM had instructed employees not to use certain phrases like “dangerous,” “death trap,” and “Corvair-like.” This only fueled concerns that GM was turning a blind eye to possible safety concerns.
Beyond the fine, GM will also have to comply with a consent agreement that requires them to meet with regulators every month for a year to go over safety issues. This comes after GM had finally paid off the remainder of the $49.5 billion bailout. GM admits that its concern for safety was lacking and has taken steps to address it. They appointed a new global head of vehicle safety, Jeff Boyer, and a new vice president for global product integrity, Ken Morris.
The lawsuit and fine highlight the deep trouble automakers can find themselves in if their internal processes are not closely monitored. The main reason GM faced the huge fine is that they apparently knew about this issue since 2009 but did nothing to resolve it. Instead, the problem was eaten up by the giant bureaucracy and never brought to light. The incident brings to mind Bill Cosgrove’s thoughts on what makes a successful car company, people and process. Clearly, someone decided to cover up the issue instead of bringing it to light and furthermore, the process allowed for this to happen. GM seems to be working to address both these problems and will certainly need to in order to avoid similar issues going forwards.
GM just announced another round of recall. Recalls cost GM hundreds of millions of dollars. This federal fine also costs GM 35 million dollars. I think that if GM keeps neglecting its safety issues, it will sooner or later become bankrupt again.
For a company as large as GM it doesn’t even seem like this fine will be too influential. It is likely that the real hit will come from the publicity, which will likely hurt sales to a similar extent.