GM's pain will exceed that $35 million fine
Shares of General Motors (GM) fell a mere 1 percent May 16 after federal regulators fined North America's largest automaker $35 million for failing to disclose information for more than a decade about faulty ignition switches that have been tied to more than a dozen deaths. Shares recovered a bit, but have stayed around $34, where they've been since mid-March.
Although the penalty is the largest ever of its kind, it's only a small financial bite for a company with a $54 billion market capitalization. However, it's also far from the last money GM will spend to clear up its worst public relations crisis in years.
During the latest quarter, GM took a $1.3 billion charge for the ignition switch recall, and it could face huge penalties resulting from a U.S. Department of Justice probe. Earlier this year, Toyota (TM) agreed to pay a $1.2 billion fine stemming from a similar DOJ investigation.
Still, GM has caught a few breaks. It's April car sales rose 7 percent over April 2013. TrueCar's Larry Dominque told MoneyWatch the scandal hasn't had any impact on GM's current lineup because the company is no longer selling the cars involved in the recall, including the Chevrolet Cobalt. "I would not expect to see big drops due to this," he said.
In addition, Dominique noted that the scandal hasn't had any impact on values of used GM vehicles, unlike the drop in used Toyota values when the Japanese carmaker had its recall woes.
Regulators, however, are livid with the Detroit-based automaker. Speaking to reporters Friday in Washington, D.C., Transportation Secretary Anthony Foxx noted, "What GM did was break the law. They failed to meet their public-safety obligations." Added David Friedman, the acting head of the National Highway Traffic Safety Administration: "Our investigation also found that General Motors was training employees in ways that could've compounded these problems."
Under CEO Mary Barra, who took the top job earlier this year, GM has created a new Global Product Integrity organization to make sure that a similar situation doesn't occur again. She has repeatedly apologized for GM's blunders and has vowed that they won't be repeated.
Of course, that's easier said than done, and the company's many critics remain unimpressed.
"Today was just a show," said Robert Hilliard, a Corpus Christi, Texas-based lawyer who's involved in litigation against GM, told Bloomberg News. The $35 million fine "was taking GM to an artificial woodshed and pretending as if GM will now become responsible."
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