Automakers face steeper recall fines

Oct. 14, 2015
As both Chrysler Fiat and General Motors received record fines for violating federal safety laws related to vehicle recalls, the U.S. Congress wrangled over safety-related language in a proposed comprehensive transportation bill.

As both Chrysler Fiat and General Motors received record fines for violating federal safety laws related to vehicle recalls, the U.S. Congress wrangled over safety-related language in a proposed comprehensive transportation bill.

During the summer, the National Highway Traffic Safety Administration (NHTSA) announced it imposed an unprecedented $105 million civil penalty for Fiat Chrysler's three violations of federal safety laws. In September, GM announced it would pay a $900 million fine to settle a federal criminal probe into its failure to recall vehicles equipped with defective ignition switches – a flaw that led to hundreds of deaths and injuries, and prompted one of the largest vehicle recalls in history. 

GM executives in that case will avoid potential criminal charges, the type of charges that are at the heart of a dispute over several amendments to the proposed highway bill.

It's been 10 years since Congress passed a comprehensive highway bill, and as the current authorization for the Highway Trust Fund was set to run out Oct. 29, legislators looked no closer to passing more than a short-term, stop-gap measure. In July, the Senate passed its version of the bill, the DRIVE Act, minus several provisions that would have imposed criminal penalties on auto executives, boosted fines, and prevented dealerships from selling vehicles with open recall notices.

Those changes irked safety advocates, even as it looked unlikely that the House would move forward with the legislation.

“Consumers expect that when there is a major safety problem, their political leaders will be on their side to address it and mitigate risk," said Jack Gillis, director of public affairs for the Consumer Federation of America. "The Senate bill gets a failing grade for protecting corporate misbehavior and malfeasance over consumer safety. The bill requires rental car companies to repair vehicles under recall for defects but not families who buy from a used car dealer. Nearly three out of four car buyers purchase a used vehicle and the Senate did not close a loophole that allows used car dealers to sell unrepaired recalled vehicles. This is unacceptable and offers second rate safety protections to the millions of consumers who choose to buy, or can only afford, a second hand car.”

The Senate's six-year, $47 billion funding bill included language that doubled the maximum fines for delayed auto recalls to $70 million (up from $35 million). The bill also prohibits the rental of vehicles under recall, and incentivizes crash avoidance technology by requiring that crash avoidance information be indicated on new car stickers

The bill calls for NHTSA to improve the www.safercar.gov website and the consumer complaint filing processes. Dealers will be required to inform consumers of open recalls during service appointments. The bill would also create a state pilot grant to inform consumers about open recalls.

The Obama administration had suggested upping the cap on fines to $300 million per delayed recall, while others had called for the complete removal of caps.

The increased fines were, in part, a response to the foot-dragging by much-maligned airbag manufacturer Takata Corp. over the past several years. In June, another defective Takata airbag was discovered in a 2015 Volkswagen Tiguan, prompting an additional federal investigation. The GM and Fiat Chrysler cases also informed debate.

In the case of Fiat Chrysler, NHTSA found problems with the company's execution of 23 vehicle safety recalls covering more than 11 million defective vehicles. Fiat Chrysler has since admitted to violating the Safety Act in three areas: effective and timely recall remedies, notification to vehicle owners and dealers, and notifications to NHTSA.

“Today’s action holds Fiat Chrysler accountable for its past failures, pushes them to get unsafe vehicles repaired or off the roads and takes concrete steps to keep Americans safer going forward,” said Secretary of Transportation Anthony Foxx. “This civil penalty puts manufacturers on notice that the department will act when they do not take their obligations to repair safety defects seriously.”

The Senate bill originally included several amendments that were much tougher on automakers and dealers. Automotive trade associations opposed an amendment sponsored by Senator Richard Blumenthal (D-Conn.) that would impose criminal penalties on auto executives if recall delays resulted in any deaths.

The National Automobile Dealers Association (NADA) led a drive to strike another Blumenthal amendment that would have prohibited dealers from selling or leasing a vehicle until a defect was remedied because the measure didn't distinguish between critical safety recalls and recalls for minor issues.

"The amendment would effectively slash the trade-in value of some recalled vehicles while removing cars from the road needlessly, and the reason could be for something as minor as a warning sticker that may peel off the sun visor," said NADA chairman Bill Fox. "This amendment would cripple the used car market, leaving consumers with diminished trade-in values or fewer options because cars would be grounded indefinitely until parts became available. This would be devastating for consumers, dealers and automakers."

Democrats were riled that the final bill eliminated Blumenthal's amendments (along with several other safety provisions), and didn't increase the fine cap as much as they wanted. A number of safety and consumer groups opposed the final Senate measure because of other perceived safety deficiencies.

"Numerous congressional hearings have identified practical legislative changes that are needed but the Senate bill rejected these reforms in favor of a ‘business as usual’ solution," said Ken Rimer, stepfather of Natasha Weigel, who died as a result of the GM ignition switch defect. "Although the DRIVE Act includes a modest increase in monetary fines that the agency can assess, they are still grossly inadequate and will never serve as a serious deterrent to corporations purposely concealing defects that cause deaths and injuries. There must be criminal penalties for automakers that knowingly conceal defects that lead to death and injury.”

While the safety issues generated some of the most heated debate, financing could ultimately sink the bill. Infrastructure funding will require additional revenue sources, a significant sticking point in the run up to an election year.

"As I watch this great deliberative body move toward a transportation bill, I sometimes feel as though I am watching an impending train wreck or a car crash because on the issue of safety this bill reflects a tragic, unfortunate, unforgivable missed opportunity," Blumenthal said. "If we authorize this transportation measure, which is vitally important to the future of our nation and will help drive economic growth and create jobs, we will miss the opportunity to make our roads and rails safer, more reliable, and more resilient for our economy and quality of life. We are missing an opportunity to, in effect, save lives."

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