Legal approach in $1.2 billion Toyota settlement could impact handling of GM recall cases

Wed, 26 Mar 2014

In the past, if an automaker did something wrong, they were usually prosecuted by the US government through something called the TREAD Act. Short for Transportation Recall Enhancement, Accountability and Documentation Act, it basically requires automakers to report recalls in other countries, along with any and all serious injuries or deaths, to the National Highway Traffic Safety Administration.

Failing to report or attempting to conceal anything when there's been a death or serious injury constitutes a criminal liability. The idea is that this setup puts the onus on manufacturers to keep NHTSA apprised of safety related issues before they become a problem in the US, thereby allowing the regulator to better protect consumers.

In theory, it sounds like a relatively airtight set of rules for dealing with misbehaving automakers. That didn't stop the US Department of Justice from ignoring TREAD in its prosecution of Toyota's handling of the unintended acceleration recall, though. The result of this new approach, which charged Toyota with wire fraud, was a $1.2 billion settlement. Now, the wire-fraud approach could be used for the expected case between the US government and General Motors, based on the statements of Attorney General Eric Holder, who specifically mentioned "similarly situated companies" when discussing Toyota.

In order to make wire fraud stick, US prosecutors would need to prove criminal intent. As explained by Reuters, that means there needs to be evidence that GM actively misled either regulators like NHTSA, or the general public, all in a bid to maintain sales. In Toyota's case, it admitted to misleading both consumers and regulators.

Considering GM's rather tenuous position in regards to the recall, we don't think prosecutors will have much trouble. Whether GM comes out and admits to any deception, though, remains an open question. Of course, if anything new develops in this case, we'll be sure to let you know.

By Brandon Turkus