News concerning two major automotive recalls shows not only the changing financial and legal ramifications of recalls, but also how recalls may unexpectedly grow in complexity.

 

First, the U.S. Justice Department is said to be considering charging General Motors with criminal wire fraud stemming from the auto maker’s failure to recall millions of vehicles equipped with a defective ignition switch, according to a Wall Street Journal article today. Federal prosecutors in New York are focusing on the charge after determining GM likely made misleading statements and concealed information about the faulty switch, now linked to more than 100 deaths, say people familiar with the case, the WSJ article reports. Prosecutors also could explore other kinds of possible criminal wrongdoing in the GM case, the people familiar with the matter said.

 

GM CEO Mary Barra confirmed today that she has been interviewed by the Justice Department in its criminal probe of how the company handled the deadly ignition switch problem. However, Barra told reporters the interview happened last year and she doesn’t know when the U.S. attorney’s office in Manhattan would release the results of its probe.

 

Wire fraud is among the statutes being considered by federal investigators because GM used electronic communications to interact with the government’s National Highway Traffic Safety Administration. Automakers must notify NHTSA within five days of finding out about a safety defect, so investigators are focused on whether GM failed to notify the agency of the switch problems and potentially tried to hide them.

 

Last year the same U.S. Attorney’s office forced Toyota to pay a $1.2 billion civil penalty for delays and cover-ups in unintended acceleration cases. Toyota settled the case but acknowledged hiding information about defects. The department also filed a wire fraud charge against Toyota that will be dismissed in 2017 if the company complies with the terms of the settlement.

 

Federal prosecutors view their case against GM as similar to the one they brought against Toyota, the people familiar with the matter say, the WSJ article notes. The size of any possible financial penalty against GM is far from finalized, though it most likely would exceed $1 billion, the sources say.

 

News also continues to get worse in another high-profile auto recall: that of faulty airbags manufactured by Japanese parts supplier Takata. Counterfeit airbags have been proliferating for years, but there is evidence that the pace has now accelerated. Indeed, the Seattlepi on-line paper reports that in response to the sudden spike in demand for airbags, counterfeits are now “flooding the market.” What’s even more disturbing, is that the counterfeit airbags may be just as deadly as those being recalled.

 

Most of the counterfeit airbags are built in China and look genuine, complete with phony certification labeling. The airbags are then sold on eBay, Craigslist and specialty sites to mechanics and car owners, who may believe they are buying a legitimate airbag salvaged at a junkyard, Seattlepi reports. However testing by the NHTSA shows consistent non-deployment, and shrapnel-producing explosions.

 

“Auto repair shops are buying and installing these counterfeit airbags into vehicles they repair in an effort to avoid the costs of genuine airbags,” a Homeland Security agent told the court in a case last month in Seattle against two men who were arrested for selling counterfeit airbags, the Seattlepi article reports. “Counterfeit airbags produce a range of results, from the airbag not deploying at all to catastrophic failures where the airbag produces a fireball and forcefully expels metal shrapnel.”

 

Both cases raise interesting implications. If the U.S. Justice Department does charge GM with wire fraud, do you think it will have an impact on how automotive companies react to possible future recalls?

 

As for Takata, what can be done to prevent the influx of counterfeit products during an enormous recall?