Archive for the ‘Auto industry’ Category

Volkswagen Deserves Its Day in Criminal Court

Thursday, October 1st, 2015

Volkswagen’s scheme to circumvent federal emissions regulations for millions of its cars cries out for tough prosecution. Yet it turns out that a little known loophole in the Clean Air Act exempts the automobile industry from criminal penalties.

EPA and Justice Department prosecutors are apparently considering whether criminal charges can be brought under other statutes, but it remains to be seen whether they will be successful. An inability to do so would be a major embarrassment for DOJ, which recently proclaimed its intention to move away from deferred prosecution agreements and get tougher with corporate culprits.

In case anyone questions the appropriateness of criminal charges in environmental cases, it is worth recalling that this approach has ample precedents. While it is true that many of the cases in the EPA’s criminal docket involve individuals at fly-by-night firms, that’s not always the case.

In fact, as part of the preparation for the Violation Tracker database my colleagues and I at Good Jobs First will release later this month, I’ve been going through the records. Here are some of the highlights:

The granddaddy of criminal environmental cases was the prosecution of BP for its role in the 2010 Deepwater Horizon disaster that killed 11 people and did untold damage to the Gulf of Mexico. In November 2012 BP pled guilty to environmental crimes (involving the Clean Water and Migratory Bird Treaty Acts) as well as felony manslaughter and obstruction of Congress. It was required to pay criminal fines and penalties of $4 billion.

In February 2013 Transocean, the company from which BP leased the ill-fated drilling rig, pleaded guilty to charges of violating the Clean Water Act in the period leading up to the accident and was sentenced to pay $400 million in criminal fines and penalties. Halliburton, which was responsible for cement work at the site, pleaded guilty to a charge of destroying evidence.

Oil companies are not the only defendants. In 2013 Wal-Mart Stores pleaded guilty to six counts of violating the Clean Water Act by illegally handling and disposing of hazardous materials at its retail outlets across the country. It had to pay $81 million in penalties.

This year, Duke Energy pleaded guilty to nine criminal violations of the Clean Water Act at several of its facilities in North Carolina and paid a $68 million criminal fine and was required to spend $34 million on environmental projects.

Volkswagen certainly belongs on this dishonor roll of environmental culprits. In fact, it probably deserves harsher punishment than even BP, given the brazen and intentional aspects of its behavior.

In reporting on the auto industry loophole, the Wall Street Journal quoted former Michigan Rep. John Dingell as justifying the provision by saying that civil penalties were “easier, speedier quicker” than criminal sanctions and warning regarding the latter: “The risk of them going out of business is very real.”

In cases such as this one, the convenience of prosecutors should not be a priority, and there are many people who may think that VW’s disappearance would not be a bad thing.

Think Irresponsible

Thursday, September 24th, 2015

volkswagen-clean-diesel-ad.w529.h352In the competition among industries to see which can act in the most irresponsible manner, we have a new winner. After nearly a decade during which banks and oil giants like BP were the epitome of corporate misconduct, the big automakers are now on top.

The news that Volkswagen inserted devices in millions of its “clean diesel” cars to disguise their pollution levels is the latest in a series of major scandals involving car companies. It comes on the heels of criminal charges against General Motors for failing to report a safety defect linked to more than 100 deaths. The Justice Department, unfortunately, deferred prosecution of those charges in a deal that required GM to pay $900 million. That looks like a bargain compared to the possibility that the EPA could sock Volkswagen, which once employed an ad campaign called Think Small, with penalties of some $18 billion.

Last year, Justice announced a deferred prosecution agreement with Toyota that required the Japanese company to pay $1.2 billion to settle charges that it tried to cover up the causes of a sudden acceleration problem. Later that year, Hyundai and Kia had to pay $100 million to settle DOJ and EPA allegations that they understated greenhouse gas emissions from more than 1 million cars and trucks.

This past July, Fiat Chrysler was hit with by the National Highway Traffic Safety Administration with a fine of $105 million — a record for that agency, which long had a cozy relationship with the industry — for deficiencies in its recall of defective vehicles.

Even Honda, which once had a squeaky clean reputation, was fined $70 million earlier this year by NHTSA for underreporting deaths and injuries relating to defective airbags. Those airbags were produced by the Japanese company Takata, which resisted making changes in its production process despite incidents in which the devices exploded violently, sending shrapnel flying into drivers and passengers.

The ascendance of the auto industry to the top of the corporate wrongdoing charts is actually an encore for what was a long-running performance. During the 1960s, GM inadvertently gave rise to the modern public interest movement in its ham-handed response to the issues raised by a young Ralph Nader about the safety problems of its Corvair compact. The 1970s were the era of the Ford Pinto with its fragile fuel tanks that blew up in even mild rear-end collisions. The 1990s were marked by the scandal over defective tires produced by Bridgestone/Firestone.

Although carmakers were not in the forefront of corporate misbehavior during the past decade, the industry’s record was far from unblemished. In 2005 VW presaged its current problems when it paid $1.1 million to the Justice Department to settle allegations that it failed to notify regulators and correct a defective oxygen sensor in more than 300,000 Golfs, Jettas and New Beetles.

And to make matters worse, through these decades the auto giants kept up a drumbeat of criticism of supposed regulatory excesses and, in the cases of GM and Chrysler, did not hesitate to ask for large bailouts when their markets collapsed.

The American love affair with the automobile has also put us in bed with corporate irresponsibility on a major scale.

What’s Good for GM is Good for GM’s Executives

Thursday, September 17th, 2015

gm-ignition-switch-accident-victims_0The famous statement from the 1950s to the effect that what was good for General Motors was good for the country needs to be updated.

Based on a settlement just announced by the Justice Department, we should be saying: what is good for GM is good for Mary Barra and bad for the country.

Barra, the chief executive of the automaker, and the company’s other top executives are celebrating the fact that they were able to negotiate a deal with federal prosecutors that contains no charges against individuals in connection with the failure to disclose a safety defect that has been linked to more than 120 deaths.

This came just a week after the adoption of a new policy by Justice that was supposedly going to make sure that individuals, including high-level executives, are targeted in major cases of corporate misconduct. That policy states that companies are not supposed to receive cooperation credit (lighter penalties) unless they hand over evidence relating to actual persons. Yet GM apparently got such credit.

What’s even more shocking about the GM deal is that the company did not have to enter a guilty plea on the criminal charges that had been brought against it. Instead, it was given the opportunity to enter into a deferred prosecution agreement — the widely criticized practice of letting a company buy its way out of legal jeopardy by promising to be good in the future.

The Justice Department was supposedly moving away from what had become virtually automatic use of this device in cases involving large corporations. The GM deal diverges from the guilty pleas that had been extracted in several cases such as those involving major banks such as Citi and JPMorgan Chase.

Finally, the settlement is a disappointment because the amount of the penalty extracted, $900 million, is hardly punitive for a company of GM’s size and is well below the $1.2 billion Toyota had to pay to resolve similar charges last year.

An unwillingness to come down hard on large corporate malefactors is all too common, but what sets the GM case apart is that it is one of those rare instances in which the misconduct has been directly linked to many deaths. The automaker was, in a sense, being accused of murder — actually, of being a serial killer. And real people were involved in the irresponsible decisions that led to those deaths.

Yet GM was offered a deal that is the equivalent of probation and a fine, while its executives did not even get a slap on the wrist. If a street murder case were resolved with such light punishment, the prosecutor would be tarred and feathered. But when it comes to corporate crimes — and crimes involving corporate executives — the rules are very different.

Punishments that Fit the Corporate Crime

Thursday, May 28th, 2015

gm-ignition-switch-accident-victims_0Now that several large banks have pled guilty to criminal charges, the next addition to the list of corporate felons could be General Motors, which is reportedly negotiating a settlement with the Justice Department to resolve an investigation of the company’s concealment of an ignition-switch problem that has been linked to more than 100 deaths.

Another criminal investigation is targeting Takata Corp., whose defective airbags recently prompted the record recall of 34 million vehicles. Its airbags can explode violently when activated, shooting shrapnel that has been tied to six deaths and more than 100 injuries.

In reporting the possibility of a plea by GM, the New York Times said the company is likely to be hit with a record financial penalty, suggesting that this will be the main punishment faced by the automaker. Presumably, Takata will also have to fork over a substantial sum.

Federal prosecutors have been extracting larger and larger amounts from companies in settlement deals, but are monetary penalties enough when it comes to corporate misconduct that results in serious physical injuries and loss of life?

Of course, there is a long tradition in the tort system of attaching dollar amounts to victims of business negligence, but when the wrongdoing is serious enough to warrant criminal charges, the culprits should not be able to buy their way out of jeopardy.

Ideally, such cases should also include the filing of charges against individuals, especially top executives, who could face the loss of their personal liberty. In most instances, however, prosecutors say it is too difficult to prove individual culpability.

How, then, could companies be punished beyond financial penalties (which are often easily affordable and tax deductible)? Short of using the corporate death penalty (charter revocation), which in the case of a large firm such as GM would cause economic upheaval, there are other options to consider.

It’s frequently said that corporations cannot be put in prison, but there are ways of restricting their freedom to operate. These involve excluding them from certain markets or putting restrictions on the scope or size of their business. Such penalties already exist in the form of debarment from federal contracting or disqualification from certain regulated activities.

The problem is that prosecutors and regulators are wary of making full use of these sanctions, as seen in the fact that the banks that recently pleaded guilty to criminal charges of rigging the foreign currency market were promptly given waivers by the SEC from rules that would have disqualified them from the securities industry.

Perhaps the bank offenses were too abstract to engender much public anger over the way they were allowed to escape some of the more serious consequences for their crimes. But I’d like to think that companies found to have caused death and dismemberment will be expected to do more than write a check.

The 2014 Corporate Rap Sheet

Wednesday, December 31st, 2014

gotojailThe bull market in corporate crime surged in 2014 as large corporations continued to pay hefty fines and settlements that seem to do little to deter misbehavior in the suites. Payouts in excess of $1 billion have become commonplace and some even reach into eleven figures, as seen in the $16.65 billion settlement Bank of America reached with the Justice Department to resolve federal and state claims relating to the practices of its Merrill Lynch and Countrywide units in the run-up to the financial meltdown.

This came in the same year in which BofA reached a $9.3 billion settlement with the Federal Housing Finance Agency concerning the sale of deficient mortgage-backed securities to Fannie Mae and Freddie Mac and in which the Consumer Financial Protection Bureau ordered the bank to pay $727 million to compensate consumers harmed by deceptive marketing of credit card add-on products.

The BofA cases helped boost the total penalties paid by U.S. and European banks during the year to nearly $65 billion, a 40 percent increase over the previous year, according to a tally by the Boston Consulting Group reported by the Wall Street Journal.

Among the other big banking cases were the following:

  • France’s BNP Paribas pleaded guilty to criminal charges and paid an $8.9 billion penalty to U.S. authorities in connection with charges that it violated financial sanctions against countries such as Sudan and Iran.
  • Citigroup paid $7 billion to settle federal charges relating to the packaging and sale of toxic mortgage-backed securities.
  • U.S. and European regulators fined five banks — JP Morgan Chase, Citigroup, HSBC, Royal Bank of Scotland and UBS — a total of more than $4 billion after accusing them of conspiring to manipulate the foreign currency market.
  • Credit Suisse pleaded guilty to one criminal count of conspiring to aid tax evasion by U.S. customers and paid a penalty of $2.6 billion.
  • JPMorgan Chase paid $1.7 billion to victims of the Ponzi scheme perpetuated by Bernard Madoff to settle civil and criminal charges that it failed to alert authorities about large numbers of suspicious transactions made by Madoff while it was his banker.

Banks were not the only large corporations that found themselves in legal trouble during the year. The auto industry faced a never-ending storm of controversy over its safety practices. Toyota was hit with a $1.2 billion criminal penalty by U.S. authorities for concealing defects from customers and regulators. The National Highway Traffic Safety Administration fined General Motors $35 million (the maximum allowable) for failing to promptly report an ignition switch defect that has been linked to numerous deaths. Hyundai and its subsidiary Kia paid $300 million to settle allegations that they misstated the greenhouse gas emissions of their vehicles.

Toxic dumping. Anadarko Petroleum paid $5.1 billion to resolve federal charges that had been brought in connection with the clean-up of thousands of toxic waste sites around the country resulting from decades of questionable practices by Kerr-McGee, now a subsidiary of Anadarko.

Pipeline safety. The California Public Utilities Commission proposed that $1.4 billion in penalties and fined be imposed on Pacific Gas & Electric in connection with allegations that the company violated federal and state pipeline safety rules before a 2010 natural gas explosion that killed eight people.

Contractor fraud. Supreme Group BV had to pay $288 million in criminal fines and a $146 million civil settlement in connection with allegations that it grossly overcharged the federal government while supplying food and bottled water to U.S. personnel in Afghanistan.

Bribery. The French industrial group Alstom consented to pay $772 million to settle U.S. government charges that it bribed officials in Indonesia and other countries to win power contracts. Earlier in the year, Alcoa paid $384 million to resolve federal charges that it used a middleman to bribe members of Bahrain’s royal family and other officials to win lucrative contracts from the Bahraini government.

Price-fixing. Japan’s Bridgestone Corporation pleaded guilty to charges that it conspired to fix prices of anti-vibration rubber auto parts and had to pay a criminal fine of $425 million.

Defrauding consumers. AT&T Mobility had to pay $105 million to settle allegations by the Federal Trade Commission and the Federal Communications Commission that it unlawfully billed customers for services without their prior knowledge or consent.

The list goes on. Whether the economy is strong or weak, many corporative executives cannot resist the temptation to break the law in the pursuit of profit.

Note: For fuller dossiers on some of the companies listed here, see my Corporate Rap Sheets.

Getting Even Tougher on Corporate Crime

Thursday, December 4th, 2014

blankenshipWest Virginia’s coal country is not very fond of the Environmental Protection Agency these days, but another part of the federal government — the Justice Department — is viewed more sympathetically.

The reason is that Don Blankenship, the most reviled man in the state, is being prosecuted. A federal grand jury recently handed up an indictment with four criminal counts against Blankenship (photo), the former CEO of Massey Energy, for conspiring with other managers to violate safety laws on a massive scale, thereby creating the conditions that led to the 2010 Upper Big Branch disaster, in which 29 miners were killed.

It is a rarity for criminal charges to reach the CEO level, and if any chief executive deserves such special treatment, Blankenship is the one. The indictment paints a picture of a manager who was utterly contemptuous of federal safety regulations and thus of the safety and well being of his employees. He is said to have called the use of workers for safety compliance “ridiculous” and “crazy.”

What’s really crazy is that Blankenship is not facing even more serious charges. He could theoretically spend as much as 31 years in prison, but if convicted he would likely serve much less time. The indictment makes a compelling case for the conspiracy charges, but they also detail activity that could easily be construed as homicide or at least negligent homicide. In fact, back in 2010 there were calls for Blankenship to be charged with murder.

Blankenship is emblematic of a type of business misconduct that brings about serious harm or even death to workers, consumers or the general public. This kind of brazen corporate behavior originated in the 19th Century and persisted in the 20th, especially in industries such as tobacco and asbestos. A new investigation by the Center for Public Integrity documents steps by the petroleum industry beginning in the late 1940s to suppress evidence linking benzene, an ingredient in gasoline, to leukemia.

It was not long ago that business apologists were claiming that such egregious cases of corporate irresponsibility were a thing of the past. We were made to believe that Big Business had cleaned up its act and was now taking the lead in promoting ethical and sustainable practices.

That notion took a beating in 2010, which saw not only the Upper Big Branch explosion but also the Deepwater Horizon disaster in the Gulf of Mexico brought about by the negligence of BP, Transocean and Halliburton.

This year corporate wrong-doing is once again in full bloom. At the center of it has been General Motors, the company whose dangerous Corvair compact gave rise to the modern public interest movement. Fifty years later, the new, post-bankruptcy GM is again facing charges of endangering lives through foolish cost-cutting measures.

GM, however, is not alone this time. We’re seeing negligent behavior by other automakers, including the Japanese, and now a scandal is growing over the practices of airbag supplier Takata, which is alleged to have covered up evidence that its products were rupturing and spewing metal debris at drivers. Now the company is resisting calls in the U.S. for a nationwide recall.

For a long time, the discussion on business misconduct has focused on the need to bring criminal charges against top executives. That’s a worthy goal, but we need to give more attention to the nature of the charges. A CEO who has knowingly placed human lives in danger should be prosecuted as toughly as street criminals who do the same. Potential penalties along the lines of life imprisonment may be the only thing that can deter the Don Blankenships of the world.

The Second Coming of Henry Ford?

Thursday, August 7th, 2014

River-Rouge-PlantElon Musk apparently wants us to think of him as the second coming of Henry Ford. The CEO of electric carmaker Tesla Motors is planning to build a $5 billion, 6,500-worker battery “gigafactory” that is being likened to Ford’s legendary River Rouge complex in Dearborn, Michigan. Musk has a group of western states desperately competing for the project.

It remains to be seen whether the Tesla plant will rise to the level of Ford’s integrated industrial wonder (photo), which in the 1920s was the largest manufacturing site in the world. Yet the two facilities will have something in common: being built in part with taxpayer money. As Robert Lacey tells it in his 1986 book Ford: The Men and the Machine, Ford arranged for the federal government to pay $3.5 million for the deepening of the Rouge River and the draining of marshes at the plant site as part of the contract Ford had been granted to produce Eagle boats for the U.S. Navy.

Tesla has also received help from Uncle Sam — in the form of a $465 million loan it repaid last year — but now the company has its hand out to those states vying to be chosen for the gigafactory. It’s been understood for months that the winner of the competition would have to put serious money on the table, but now Musk has indicated exactly how much in the way of subsidies will be required: 10 percent of the cost of the plant, or about $500 million.

The company and its apologists insist that the demand is not excessive, noting that Volkswagen got a bit more for its assembly plant in Tennessee despite the fact that it is employing a lot fewer workers than Tesla promises. That’s true. Volkswagen got $554 million from state and local agencies, and that is far from the largest subsidy package ever awarded in the United States. In the Good Jobs First Megadeals compilation, it ranks 24th.

Yet such a comparison is problematic, because it is far from clear that the $500 million figure will be the total subsidy burden the winner of the Tesla auction would take on. In all likelihood, the $500 million would be only the up-front cost, while state and local governments would also probably have to offer long-term tax benefits that would end up being much more expensive.

This happens all the time. In the case of Volkswagen, public officials were initially mum about the estimated total size of the package, and it was only through reporting by the Chattanooga Times Free Press that the real costs came to light. By the way, VW is now getting $274 million more for a plant expansion.

Another egregious case of low-balling subsidy estimates happened in Mississippi, where officials initially put the cost of the package given to Nissan in 2000 at $295 million. Yet, as my colleague Kasia Tarczynska and I showed, when all was said and done, state and local agencies in the Magnolia State gave the carmaker subsidies worth more than $1.3 billion.

The odds that Tesla will seek to maximize its subsidy payoff are increased by the fact that it just announced a partnership with Panasonic. The Japanese company managed to extract a subsidy worth more than $100 million from New Jersey to move its North American headquarters a short distance.

Along with underestimated costs, there is a chance that projections about the Tesla project are overstating potential benefits. Particularly suspicious is the claim of 6,500 jobs. Given current manufacturing practices, a workforce of that size is highly unlikely. I can’t help but suspect that the number may include temporary construction jobs or supplier jobs. It’s worth noting that the heavily subsidized advanced battery projects in Michigan mostly created jobs only in the hundreds, the best case being the 1,000 positions created at A123 Systems before it went bankrupt.

And even if Tesla beats those figures, there’s the question of how good the jobs will be. The Japanese and German auto assembly transplants have had to set their wages close to those of the Detroit automakers (though benefits are substantially lower). Will Tesla feel any pressure to create decently paying jobs, or will it take advantage of a struggling area such as Reno, Nevada (one of the possible sites) or the low-wage, anti-union climate of Texas (another contender) to keep compensation levels low?

Fortunately, it is not entirely up to the company. The upside to the insistence on a big subsidy package by Tesla is that states attach some job quality standards to their awards. From this perspective, the best outcome would be for Tesla to choose Nevada, which ranked first in the rankings my colleagues and I at Good Jobs First did on state practices in this area.

Even if Elon Musk does not agree with Henry Ford’s famous wage boosting policy, he won’t be able to exploit his workers as thoroughly as he is doing to taxpayers.

Real Abuses, Sham Reforms

Thursday, July 17th, 2014

bosses_900It is now a full century since the Progressive Era ended some of the worst abuses of concentrated economic power. This year is the 100th anniversary of the Clayton Act and the Federal Trade Commission Act.   It is 103 years since the dissolution of the Standard Oil trust, 108 years since the passage of the Pure Food and Drug Act.

Yet even a casual reading of the business news these days suggests that we live in an economy disturbingly similar to the age of the robber barons.

Back then, the trusts shifted their incorporation to states such as New Jersey and Delaware that were willing to rewrite their business laws to accommodate the needs of oligopolies. Today large corporations are reincorporating themselves in foreign tax havens to dodge taxes. The practice is reaching epidemic proportions in the pharmaceutical industry.

Back then, unscrupulous drug companies and meatpackers sold adulterated products that could sicken or even kill their customers. Today General Motors is caught in a growing scandal about ignition switch defects that resulted in at least 13 deaths. The news about the automaker’s recklessness grows worse by the day, with the New York Times now reporting that company withheld information from federal regulators about the cause of fatal accidents.

Back then, wheeler-dealers such as James Fisk peddled dubious securities in companies that later collapsed, impoverishing investors. Today we’re still trying to get over the impact of the toxic mortgage-backed securities that the big banks packaged and sold during the housing bubble. Just the other day, Citigroup became the latest of those banks to settle charges brought by the Justice Department. Yet the $7 billion extracted from Citi, like the amounts obtained from the other banks, will cause little pain for the mammoth institution and will thus do little to deter future misconduct. The provision in the settlement for “consumer relief” is too little, too late.

And, of course, back then, the trusts got to be trusts by eliminating their competition. Today concentration is alive and well. Recently, the second largest U.S. tobacco company, Reynolds American, proposed a takeover of Lorillard, the number three in the industry. If this deal goes through, it won’t be long before Reynolds tries to marry Altria/Philip Morris, putting virtually the entire carcinogenic industry in the hands of one player, the way it was a century ago during the reign of the American Tobacco Company, aka the Tobacco Trust.

The movement toward a Media Trust just accelerated with the revelation that Rupert Murdoch’s 21st Century Fox, already huge, is seeking to take over Time Warner. The deal would put a mind-boggling array of entertainment properties under one roof. Murdoch offered to sell off Time Warner’s CNN – a meaningless concession given that the news network has struggled to survive against Murdoch’s despicable Fox News. Murdoch’s move comes as another media octopus, Comcast, is awaiting approval for its deal to take over Time Warner’s previously spun off cable business.

While we have all too many indications of a new Gilded Age, still scarce are signs of an effective response. We’ve got a good amount of muckraking journalism and a fair number of people (and even a few elected officials) who calls themselves progressives. Yet somehow this does not add up to a movement that can take a real bite out of corporate crime.

Part of the problem is that many of those in power professing progressive values are not serious about challenging corporate power. Some historians argue that the original Progressives were, like the New Dealers who came later, mainly concerned with saving capitalism from itself rather than changing the system. Yet they still managed to impose significant restrictions on big business through antitrust and other forms of regulation.

Today’s progressive officials often seem to want nothing more than to give the appearance of reform. That’s the story at the Justice Department, which has raised settlement levels and extracted some token guilty pleas but still allows corporations to buy their way out of serious legal jeopardy. Meanwhile, antitrust enforcement is tepid, and as the GM case increasingly shows, regulation is often a joke.

A resurgence of robber-baron behavior requires real, not sham reform.

Congress’s Corporate Accountability Charades

Thursday, April 3rd, 2014

bosses_900In recent days we’ve seen reprises of that old stand-by from the Congressional repertoire: hearings in which members of the House and Senate express indignation at corporate misconduct. Like similar performances that have come before, these events provided some short-term gratification but in all likelihood will ultimately prove frustrating.

The designated whipping boys this week were General Motors and Caterpillar. Both are legitimate targets. GM is embroiled in one of the worst safety scandals in its history as a result of mounting evidence that for years it concealed evidence of an ignition-switch defect that has been tied to a large number of deadly accidents. Caterpillar is under the gun because of a new Senate report accusing it of using accounting gimmicks to avoid more than $2 billion in federal taxes.

At a hearing of the Senate Commerce committee, GM chief executive Mary Barra was confronted with statements such as “The public is very skeptical of GM,” “GM is not forthcoming” and “I think this goes beyond unacceptable. I believe this is criminal.”

The amazing thing is that these statements were coming from both Democrats and Republicans, who differed little in their critique of the automaker. The same can, for the most part, be said about Barra’s only slightly milder interrogation by the House Energy and Commerce investigative subcommittee. Several Republicans sought to score some political points by emphasizing GM’s previous status as a government-controlled corporation, and Tennessee Republican Marsha Blackburn asked Barra whether the company’s safety lapses were related to the federal bailout (Barra sidestepped the question). Yet they did not press too hard in that direction.

The transcripts of the two GM hearings (available via Nexis) paint a very different picture of Congress from what we usually see these days. As Rep. Peter Welch of Vermont stated in the House hearing: “I have to congratulate General Motors for doing the impossible. You’ve got Republicans and Democrats working together.”

There was a similar seriousness of purpose and absence of simple-minded partisanship in the Senate hearing on Caterpillar. Subcommittee chair Carl Levin, a Michigan Democrat who has done extensive work to highlight corporate tax dodging, was of course aggressive in grilling company executives about Caterpillar’s funneling of vast amounts of profit through a tiny Swiss subsidiary to take advantage of an artificially low tax rate.

Yet the company did not get much sympathy from the Republican members of the subcommittee either, though Wisconsin’s Ron Johnson did manage to interject a reference to “our uncompetitive tax system.”

The unfortunate truth is that hearings such as these end up being nothing but a charade in which members of Congress pretend for a while to be tough on an egregious case of corporate malfeasance before they go back to doing the bidding of the monied interests.

For example, New Hampshire Sen. Kelly Ayotte, who was the one calling GM’s behavior “unacceptable” and “criminal,” sought to weaken the Consumer Financial Protection Bureau last year. Nevada Sen. Dean Heller, who joined in the critical questioning of Barra, once introduced a bill to prevent the Environmental Protection Agency from introducing “job-crushing regulations.”

The problem extends to Democrats as well. Veteran Rep. John Dingell, who was awarded special deference at the House hearing, has long-standing ties to General Motors and the other big U.S. automakers, which have been among his strongest political supporters. His wife Debbie Dingell worked for GM for 30 years. When the 87-year-old Dingell announced earlier this year that he plans to retire from Congress, a GM spokesperson said:  “As a champion of the auto industry, John Dingell had no peer.”

If anything, the inclination of members of Congress to do the bidding of business will only increase, now that the Supreme Court has struck down limits on total amounts wealthy individuals can give to candidates, party committees and PACs. Chief Justice John Roberts wrote: “Money in politics may at times seen repugnant to some, but so too does much of what the First Amendment vigorously protects.”

By once again equating money with speech, Roberts is ensuring that those with the most of it, including giant corporations, are the ones to which Congress, apart from brief periods of public interest grandstanding, will bow.

Still Unsafe At Any Speed

Thursday, March 20th, 2014

unsafeIn a resounding affirmation of the principle that the cover-up is worse than the crime, federal prosecutors emphasized Toyota’s deceptive practices in announcing that the carmaker will pay $1.2 billion to settle a criminal charge relating to the sudden acceleration controversy. The Justice Department press release uses just about every synonym for dishonesty in describing Toyota’s misdeeds.

“The company admits that it misled U.S. consumers by concealing and making deceptive statements,” the release states, adding that the company “gave inaccurate facts to Members of Congress.” Later it says that Toyota “was hiding” critical information from federal regulators and that it made public a “false timeline.” U.S. Attorney Preet Bharara alleges that the company “cared more about savings than safety and more about its own brand and bottom line than the truth.”

Such strong talk is gratifying, but Toyota, like so many other corporate miscreants, was offered a deferred prosecution agreement in place of an outright conviction. This was made somewhat more palatable by the provision in the agreement that bars the company from deducting the penalty amount from its taxes.

Prosecutors used the announcement to convey a thinly veiled warning to General Motors that it too will have to pay a substantial amount to resolve its own legal entanglements on safety issues. Bharara declared: “Companies that make inherently dangerous products must be maximally transparent, not two-faced. That is why we have undertaken this landmark enforcement action. And the entire auto industry should take notice.”

GM’s announcement several weeks ago that it was recalling hundreds of thousands of its small cars because of an ignition switch problem mushroomed into a major scandal as information came to light suggesting that the company had dragged its feet in dealing with the issue, even though it was linked to 13 deaths. Federal regulators, which had received several hundred complaints relating to the problem, were also criticized for being slow to act. Both Congress and the Justice Department have launched investigations of the matter.

In recent days, GM has tried to spin the situation to its advantage, with CEO Mary Barra putting herself out front and making extravagant promises that such a safety lapse would never happen again. Living up to such a commitment will be even more difficult for GM than it was for Toyota, which used similar p.r. stratagems during earlier phases of its controversy and ultimately failed.

After all, the history of GM is filled with examples of irresponsibility on safety issues. It is now 50 years since Ralph Nader exposed the defects of GM’s Corvair, prompting the company to spy on him and thus inadvertently give a boost to the nascent corporate accountability movement.

Later, GM failed to act when presented with reports that poorly sealed panels on some of its cars could cause dangerous levels of carbon monoxide to leak into the passenger compartment. After some deaths were attributed to the problem in the late 1960s, the company finally recalled 2.5 million cars to repair the defect.

During the 1970s and 1980s the company was frequently criticized by environmentalists and consumer advocates for its efforts to weaken federal rules on emissions and for its resistance to regulations requiring passive restraints such as airbags in all automobiles. In 1990 GM finally agreed to put air bags in all of its U.S. cars starting in 1995.

In 1992 the New York Times published an investigation concluding that GM had recognized as early as 1983 that its pickup trucks with side-mounted gas tanks were highly dangerous but took no action until 1988, even then saying the change was for design rather than safety reasons. During that period, more than 300 people were killed in collisions in which the tanks exploded.

GM resisted recalling trucks with the side-mounted tanks even after the federal government asked it to do so. Instead, it launched a campaign against safety advocates and plaintiffs’ lawyers. In 1994 the company reached a settlement with the U.S. Transportation Department under which the federal government gave up on its effort to get GM to recall the trucks in exchange for which the company agreed to contribute $51 million to auto safety programs. GM still faced a series of personal injury lawsuits in connection with the exploding gas tanks, including one in which a Los Angeles jury awarded victims $4.9 billion in damages. GM appealed, and the case was later settled out of court for an undisclosed amount.

It remains to be seen how much GM has to pay in fines and settlements for its current ignition switch scandal, but it will take a lot of punishment to get a company with such a long history of safety lapses to change its ways for good.


New in CORPORATE RAP SHEETS: a profile of Yum Brands and its controversies relating to wage & hour violations, sanitation lapses and animal cruelty.