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GM’s Home Field Advantage

When you want referees to make tough calls impartially, it is a terrible idea to ask the home team to provide the officials.

Unfortunately for companies based outside the United States, there is no one to substitute for the Justice Department when it comes time to make a call. The results are predictably skewed.

Last week, General Motors announced a settlement with the Justice Department in which it will pay $900 million and admit to misleading both the public and the government about the safety of its vehicles. The settlement ends a federal criminal probe into the way the company handled the defective ignition switches present in some of its models, a problem that came to light in early 2014. As long as GM adheres to its obligations under a three-year deferred prosecution agreement, the criminal charges will eventually be dropped.

The $900 million penalty is not exactly a slap on the wrist, especially when considered together with the settlements GM will also pay in private litigation. The automaker has said it will record a $575 million charge in the third quarter for such settlements, including the settlement of a shareholder class action suit. But compare that $900 million to Toyota’s $1.2 billion fine over its acceleration issues in March 2014. Toyota’s penalty was the largest ever levied against a car manufacturer, coming after a four-year probe into the company’s handling of its massive recall and associated safety issues.

When the Justice Department announced Toyota’s fine, more than one news outlet speculated that the outcome would serve as a template for the eventual resolution of the investigation into the GM ignition switch matter. The GM investigation was already underway at the time, and the Detroit-based company had already acknowledged that it knew about the defect for years before it conducted a full recall.

From the outside, the most charitable way to describe the fact that GM’s fine is less than Toyota’s is “unexpected.” One person briefed on the matter, who spoke anonymously to The New York Times, said the smaller fine reflected GM’s cooperation with the investigation. Yet GM clearly knew that it faced a discrete mechanical problem and hid that knowledge for over a decade; Toyota’s culpability, while not zero, is much less clear-cut. GM also took extreme steps to avoid drawing attention to its problem, even to the point of replacing a part but keeping the same part number to avoid scrutiny as it attempted to address the issue.

The faulty ignition switches have been linked to 124 deaths. Though the number of deaths attributed to uncontrolled acceleration in Toyota vehicles is disputed, it is probably at the lower end of the range of the figures suggested - from "at least" 34 people to 89 people, with various other estimates falling in between - since sudden acceleration is a problem reported with many makes and models of vehicle. GM’s recall was also larger: over 27 million cars when compared to fewer than 10 million for Toyota. And, as Toyota itself has maintained, unintended acceleration is sometimes due to driver error - something that almost never occurs with an ignition switch cutting out without warning.

Yet despite these differences, it is GM that paid the lesser fine. Toyota, instead, served as a warning to the automotive industry at large; then-Attorney General Eric Holder explicitly said, “Other car companies should not repeat Toyota’s mistake.”

As a side note, The New York Times reported that it is likely no GM employees will face indictment over the ignition switch matter, notwithstanding the Justice Department’s new initiative to hold individual employees responsible for corporate misconduct. No Toyota executives were criminally charged, either. This is probably the right outcome, given the safeguards in our legal system. Yet it also underscores the degree to which politics enter the Justice Department’s decisions on how and when to charge a person or an organization.

The end result is that GM is facing punishment for hiding its faulty switches, as it should, but there is a strong appearance that the punishment would have been more severe for a foreign automaker acting in the same manner. While the U.S. government is no longer a GM stockholder, it seems as if the Justice Department is inclined to pull its punches when its target is one of the anchors of the American auto industry.

Visiting teams, take note.

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