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The auto industry’s margin for error is poised to shrink yet again.
Because of GM’s decade-long ignition-switch debacle that claimed at least 13 lives, a Missouri senator is pushing legislation that would effectively criminalize decisions by auto executives to withhold information on defective parts from the public and federal regulators.
The surprise, to the extent there is one at all, is that it took this long for a member of Congress to respond legislatively to the egregious facts of the GM case and what it portends for the buying public. Add President Obama’s avenging Justice Department, and you have a whole new ballgame.
Namely, fines that could easily rise into the billions of dollars — witness Toyota Motor Corp.’s $1.2 billion penalty in connection with its unintended acceleration recall scandal four years ago — now could be augmented with up to life in prison for auto executives who hide defects that could result in fatalities.
The move by Sen. Claire McCaskill, a Democrat and former prosecutor in Kansas City, comes as industry sales posted their best month so far this year. They are predicted to move higher as evidence mounts that GM’s bad press from nearly 30 million recalls worldwide is failing to stem demand for its new cars and trucks here at home.
“With millions of Americans behind the wheel every day, and more than 33,000 killed on our roads each year, we’ve got to do more to keep our cars and the roads we drive them on safe,” McCaskill said in a statement announcing the Motor Vehicle and Highway Safety Enhancement Act. “Painful recent examples at Toyota and GM have shown us we also must make it easier to hold accountable those who jeopardize consumers’ safety.”
She’s right, and automakers competing in the rich U.S. market can thank GM’s dysfunctional legal and engineering silos for what promises to be another layer of complexity, even intimidation, from Washington. What could it mean, if anything, for sales now shifting into a higher gear?
Not much, if industry sales in general and GM’s in particular are any indication. Automakers collectively have recalled far more cars and trucks in the U.S. market this year than they have sold, but consumers continue to grab new models at a blistering rate.
That’s because the average age of the nation’s fleet is approaching 11 years. Financing, including that for subprime customers, is increasingly available. The nation’s macro-economic outlook, bolstered by the resilience of the equity markets, is improving. And current and future products are more important to buyers than troubles of the past.
“July was the best month this year for unit sales,” Warren Browne, vice president of business development for AutomotiveCompass LP and a former GM executive, said in an email Monday. Chrysler Group LLC models continue to outperform expectations; GM’s newer models, by contrast, are not turbocharging the automaker’s market share at home.
“GM is a troublesome story. The focus they need on product and marketing is three times greater than the culture change in legal and engineering. They are a better company, but the grim reaper still has a hand on the sword.”
Meaning a federal bailout, strong profitability in its home market and an impressive cash hoard do not ensure success for Detroit’s No. 1 automaker, especially when the regulatory environment is likely to grow more inhospitable in the wake of GM’s self-inflicted ignition switch morass.
The regulatory zeal issuing from Washington, as predictable as it is necessary, won’t come without costs and unintended consequences. It drives cost into the system as it drives risk-taking out. It sharpens the increasingly adversarial relationship between the government and the auto industry, a major national employer that forms a cornerstone of American manufacturing.
It arms trial lawyers with new, potentially expensive weapons to wield against the makers of cars and trucks. It likely will burden consumers with more recalls and more trips to dealerships, a boon to service departments whose managers get another chance to sell ancillary services to drivers who just want their vehicles to be safe.
McCaskill’s legislation is inevitable, as much a result of modern society’s expectation for risk-free products as a rational response to GM’s decade-plus of miscommunication and studied callousness.
In short, it — or whatever may emerge in its place — are the price of doing automotive business in an increasingly regulated nation.