Defective,Unsafe Autos Archives | DENENA | POINTS

New Auto Defect Whistleblower Proposal Receives Early Support

There is a new piece of federal legislation being proposed that would give financial incentives to whistleblowers who expose safety defects in autos.  The legislation is in response to the recent wave of auto defects, some of which were concealed by automakers for up to ten years.  It would allow any whistleblower to share in the penalty payments that an auto company may be forced to make as a result of failing to disclose a known defect.

Whistleblowers To Be Rewarded

The legislation appears to have bi-partisan support, and would reward a broad class of whistleblowers including:

  • Automaker employees
  • Contractors
  • Parts suppliers
  • Car dealerships

If any one from this class of whistleblowers shares original information on defects or reporting violations, then they could receive up to 30% of penalties levied against the automaker.  For example, last year General Motors paid a fine of $35 million for failing to report the ignition switch defect that has claimed 379 lives to date.  This incentive for a whistleblower to come forward may be the type of insider scrutiny that the industry needs, since auto industry executives seem to be free of conscience when it come to disclosing life threatening defects in their vehicles.

It is encouraging to see that car dealerships are included within the scope of the legislation, since many dealers are the first ones to become aware of problems with their own customers’ cars.  Further, many automakers penalize dealers for disclosing to the public or media any suspected defects, and sometimes refuse to reimburse the dealer for the cost of repairs.  This will finally put car dealerships on the side of consumers, and they can play a role in preventing needless injuries and deaths due to defects.

What Are The Repercussions for Whistleblowers?

The role of whistleblower can be complicated, especially for an employee who relies on their job to make a living.  There is a real concern of retaliation against an employee who make expose violations, such as job loss, pay cuts and even disgruntled actions by other employees who may see the defect revelation as a threat to their own livelihood.  However, there should be provisions for anonymity in the reporting process, and if the reward is significant enough then income may not be a problem.

This type of whistleblower legislation is similar to those used by the SEC and IRS, but in the case of auto defects it may be life saving.  It does raise the question of why such a law is needed, and whether concealing defects is just business as usual at automakers.  The fact that federal legislators have to enlist the aid of those with access to vehicles and parts illustrates just how far this practice has gone in the auto industry.  This is not a simple matter of an unknown defect creating a single accident.  This law is the result of the habit of automakers to sell defective cars for years at a time, without ever informing the consumer that their life may be in danger.

Record Number of Auto Recalls Start to Initiate Changes in the Industry

The well-publicized auto recall record in 2014 has many people wondering what is happening with the car industry. During an age where both federal regulations and class action liability suits are increasing, it would seem that automakers should be taking notice of the financial cost of poor design and manufacturing practices. Despite the record number of recalls, traffic accident statistics show that traffic deaths have declined over 25% the past 10 years, although much of that decline could be attributed to strict seat belt laws and drunk driving awareness campaigns.

Financial Costs for Automakers

Some of the costs of selling defective autos are starting to mount for automakers. Federal regulations allow for a $35 million fine for each violation of failing to report a defect (which the NHTSA is trying to raise to $300 million), and there have been recent criminal fraud and personal liability suits against major automakers. Toyota Motor Company paid a $1.2 billion settlement for criminal fraud last year for concealing defects in its vehicles. This was following a $1.6 billion class action settlement to compensate vehicle owners for loss of value due to defects. These two cases don’t even include any claims for personal injury or death from victims of defective autos, and those types of cases are sure to eclipse anything seen so far.

When Will Liability Suits Begin to Change Corporate Behavior?

The threat of liability suits still carry the greatest threats to automakers who believe that profit carries a higher value than customer safety. One of the seminal auto defect cases in history is the now famous Ford “Pinto” lawsuit, where it was revealed that the maker of that vehicle engaged in a statistical analysis of the cost of making a safe car versus the cost of potential liability. The accountants won the day, and it was decided to keep the gas tank in the rear of the vehicle even though the company knew that explosions and death would result from a rear end collision. The case served to raise public awareness of auto defects and put automakers on notice that damage awards for concealed defects could easily exceed their statistical analysis.

Product liability law and personal injury suits have evolved in the past 30 years to become the chief means of protecting victims from unknown dangers in autos. Without the threat of a lawsuit, automakers would have no incentive to make safer cars. It will be interesting to see how far the class action and wrongful deaths suits will go for GM, Toyota and Honda, based on the consistent and egregious concealment of life-threatening defects in their vehicles. Perhaps someday consumer safety will overcome the allure of shareholder return and executive bonuses, and it may have to reach a point of actually putting executives in prison for their role in causing innocent loss of life. That may seem like an extreme remedy, but for family members of victims killed by decisions made by corporate leaders, the punishment might just fit.

The Cost of Auto Defects: Summary of GM Ignition Switch Lawsuits and Claims

As the GM ignition switch drama continues to unfold the automaker has disclosed the number of lawsuits and claims to be filed so far.  Although GM states that “we cannot currently estimate the potential liability” there are some who believe that it could reach into billions of dollars worth of damage awards.  In 2014 GM spent almost $3 billion on repairing recalled vehicles, so it is not hard to imagine class action personal injury awards that would be many times that amount.

Personal Injury and Wrongful Death Suits Begin to Mount

To date, there have been 104 injury and death suit filed for damages stemming from the defective ignition switch.  While GM is defending most of the suits, the most controversial is the automakers assertion that it is not responsible for claims that date back to its pre-bankruptcy business form.

This is the ultimate smoke and mirrors claim, as GM attempts to use the restructuring of its debts available under federal bankruptcy laws to shield itself from liability.  The automaker was bailed out of bankruptcy using taxpayer dollars, and now wants to use this event as a way of avoiding responsibility for its corporate actions and defective products.  If considered in terms of social policy, the company has levied a cost on the public in two ways: by using federal tax dollars to bail out a failing business and then denying payment of claims to victims of injuries from before the bailout.

If allowed, this could set a dangerous precedent for other businesses to simply “reset” the clock on personal injury claims, and assert that their ‘old’ business no longer exists and they cant be responsible for any defects.  This is even more disturbing given the fact that GM actually hid the known defect from consumers and regulators for years, and now attempts to avoid responsibility for their negligence.

Early Settlement Claims of $93 Million

In any event, it will be difficult for GM to successfully fight most of the claims since the defect has been clearly linked to at least 51 deaths.  GM does have a program to compensate victims through an ‘early settlement’ process, that has paid our $93 million so far.  The automaker has set aside $400 million for this fund, and any victims who take the offer would be barred from further personal injury claims in court.  This is another attempt by GM to limit its eventual cost of liability, as the company is facing the barrage of claims from 10 years of concealing the defect from consumers.

Even if the entire fund is paid out, it is only a fraction of the profit the company earned in 2014 of $2.8 billion and $3.8 billion in 2013.  The GM ignition switch case is sure to establish new ground in how auto defects are handled and claims paid, and should have a dramatic effect on the future of the auto industry.

Who Is Responsible for Safety Defects in When a Consumer Buys a Used Car?

Every year millions of used vehicles are sold by dealers to consumers who may have no idea that their used car or truck has a safety defect.  While there are extensive regulations for disclosure of defects to original buyers, those who buy used cars are on their own when it comes to discovering and repairing possible safety hazards.

A Used Car Buyer Is Killed By an Undisclosed Defect in a Used Car

Recently, the buyer of a used Honda was killed when the airbag exploded sending a piece of metal into his neck.  He had no idea that the car he bought had one of the now infamous Takata airbags, which have been recalled globally for safety reasons.  There are other instances of these airbags causing death to owners who were unaware that the used car they bought had the same defective airbag installed.

This further solidifies the poor reputation that many used car dealers have when it comes to their trade, but in this case it resulted in the tragic death of a customer.  The fact that the death could have been prevented by a simple disclosure must have been less important to the dealer than simply closing the sale.

No Federal Regulations Requiring Used Car Dealers to Repair or Disclose Defects

The used car dealer has no responsibility under federal law to either repair defects or even disclose to buyers that there may have been a recall.  This same lenient policy extends to rental car companies who often sell their aging fleet on the used car market.  Of course, disclosing to a customer that a vehicle has a life threatening safety defect would definitely make it harder to sell, and would affect the re-sale value for the dealer.  At the very least, they would have to repair the defect to make the vehicle safe.

Used car buyers are on their own when it comes to researching any open recalls on the car they plan to purchase.  There are databases available where a consumer can check the recall status of any make and model of vehicle, and it continues to be the buyer’s responsibility to find out about the defect that the used car dealer may be concealing.  However, a used car dealer cannot be shielded from any responsibility just because there are other ways to discover the defect.

Establishing Liability of Used Car Dealers Who Have Knowledge of Defects

There is a pending lawsuit against the used car dealer, and it does pose an interesting legal question of liability.  Even absent federal regulations requiring disclosure of defects, there could be some basis for a negligence suit if the used car dealer had knowledge of the defect, but failed to tell the buyer.

This duty goes beyond the simple mechanical or historical information about a used car, since many defects can pose a threat of injury or death to unsuspecting buyers.  Simply, if the dealer knew of a life-threatening defect and failed to tell the buyer, then they might be found liable for any injuries that could have been prevented by disclosure of the problem.

The Eventual Outcome of Massive Defect Recalls: More Expensive Autos

In the wake of the 60 million vehicles recalled in 2014, there is one inevitable result for automakers and consumers.  The cost of cars and trucks is sure to rise, as automakers and parts manufacturers implement stricter safety measures.  These costs will be passed on to consumers via higher sticker prices and fewer incentives to buy new vehicles.  This occurs during a time where the auto industry is struggling and the margins for car dealers are shrinking.  In the quest for securing a consistent percentage of the market, automakers are often forced to choose between safety and affordability, or risk losing customers to a competitor.

Is Risk an Inherent Element of Affordable Vehicles?

One of the natural questions to arise is whether the only way to make affordable vehicles is to compromise on safety.  For example, as the 2014 recall numbers are evaluated, many auto parts manufacturers will be expected to increase their own safety inspection methods, which will add to the expense of the parts that go into vehicles.  However, this does not mean that the actual design and manufacture of parts will improve.  It seems like the money is better spent on research and development to create parts and vehicles that are inherently safer.  If the affordability of vehicles is directly related to low safety standards, then it is possible that the auto industry has been operating in a “false economy” for decades.

There is an expectation in the auto market that anyone should be able to buy a car, and the use of low interest financing, rebates and other incentives are a key part of convincing consumers that vehicles are affordable.  However, that may be changing as federal regulators take steps to increase inspection and defect repair rules, forcing automakers to increase prices on all vehicle types.

The Threat of Liability May Be Insufficient to Manufacture Safe Vehicles

The threat of liability has always been present as a means to encourage spending on manufacturing safe vehicles.  But in a very competitive marketplace where margins are slim, there is the temptation to cut corners, or even conceal known defects to save the expense of repairs and recalls.  Many parts makers are now saying the right things in response to the ignition switch and airbag recalls, but in truth they always had the option to make safer and more expensive parts.

Just like many product manufacturers, auto and parts manufactureres don’t change their approach until there is a financial incentive to do so.  It is naïve to think that these companies are proactively trying to make the safest parts and vehicles possible.  Their priority is to create a return for shareholders, and that often means selling a vehicle that is a compromise when it comes to safety.  When a defect is discovered, there seems to be an articulate strategy of concealing the defect and selling vehicles that are unsafe.  Only when injuries and deaths result are automakers motivated to increase their safety standards.

Fines From Federal Regulators are a Poor Deterrent for Disclosure of Defects by Automakers

In an era where auto recalls for defects are at a record high, it is becoming apparent that the current system of enforcing defect disclosure rules are ineffective. Automakers have little incentive to disclose defects through surging warranty claims or their own internal testing, since the fines that are levied for infractions are easily absorbed into their multi-billion dollar earnings. This system leaves only the threat of liability lawsuits as a way to change the industry’s current attitude toward consumer safety.

Fines for Failure to Report Defects are Insufficient

For example, Honda Motor Company was recently fined $70 million for failing to disclose defects in almost two-thirds of autos that should have been identified under the federal Early Warning System. However, when compared to Honda’s earnings over the same 10-year period that amount is hardly a blip. To state it plainly, it is far more cost-effective to withhold defect information and pay the fine, than to go to the expense of correcting the defect in thousands of vehicles. This is reminiscent of the early days of auto defect lawsuits where automakers were discovered to have used a statistical approach to design defects and possible liability. For example, the potential number of injuries and deaths were calculated along with the expected level of damage awards, and if the cost of paying settlements or liability claims were less, then the defect would not be corrected.

It is hard to say if this kind of callous disregard of human life is still part of the industry’s cost –benefit analysis, but when both Honda and General Motors are found to have actively hidden defects from regulators and consumers, it is natural to suspect that nothing has really changed except for the polished public relations campaigns that now accompany recalls.

Some Call for Criminal Penalties Against Auto Executives

There are measures that could be taken to enhance the motivation of automakers to report safety defects that go beyond financial penalties. While some lawmakers are calling for higher fines, there can be no expected change until executives begin to face criminal charges for their roles in hiding defect that result in loss of life. Any auto executive that knew a federal prison sentence was the consequence of non-disclosure would probably make every effort to make sure that regulations were strictly followed.

This level of personal accountability is probably the only thing that will alter corporate behavior in this arena, since all financial consequences are borne by the company, and the executives have no responsibility. There is always the threat of liability suits to curtail this type of defective product from reaching consumers, but it seems that the trend is to vilify the path of litigation as ‘adding to the cost of products’ and lawyers as the real culprit. Unfortunately, for many consumers the personal injury attorney is their only ally in the event of an accident, since neither government agencies nor the automakers seem to be able to stem the tide of auto defects that cause many injuries and deaths each year.

Defective Guardrails Cause Injuries and Deaths to Motorists

While most defects that cause highway injuries occur in vehicles, there is a new culprit on the roadways that most motorists would never imagine posed a risk.  The guardrail ‘end terminal caps’ manufactured by Trinity Highway Products have been found to be defective, and are now suspended from use in 40 states including Texas.  The rectangular terminal cap is supposed to be designed to absorb the impact of a vehicle that strikes it, but the Trinity caps have seen instances where they actually penetrate the vehicle and either impale or eject the driver.

No Disclosure Made by Trinity Following Design Changes

Trinity has been accused of making design changes in 2005 that caused the defect, but did not disclose those changes.  The modification saved Trinity about $2 per guardrail, or around $50,000 per year.  Federal regulators were not notified of the changes as is required.

Although no new guardrails are being installed, there may be countless Trinity caps in use across the state of Texas exposing motorists to an unforeseen type of risk on the highways.  A jury in Texas recently decided that Trinity should pay $175 million in fines for failing to disclose the defect, which was made public by a company whistleblower.  That fine will triple to $525 million under federal law.  The fines were imposed for violation of the federal False Claims Act, and could be a precursor to further legal action against the company.

Testing is being conducted in Texas to determine if the design defect is present in state guardrails, although several injuries have already been attributed to the terminal caps, including a man who had his leg severed.

Widespread Potential Liability for Trinity

The fact that Trinity failed to disclose a defective design change that has resulted in injuries and deaths, exposes the company to widespread liability.  The terminal caps are used nationwide, and apparently there is no dispute that they caused the injuries cited by federal investigators.  The primary concern at the moment is the existence of these terminal caps on over 200,000 stretches of highway across the country.  So far, only Virginia has called for replacement of all Trinity guardrail caps, but other states should follow soon.  Replacement of the guardrails could cost as much as $5 million in one state alone, according to a study conducted in Delaware.

There are a few lawsuits pending, but the obvious non-disclosure by Trinity of the defect and resulting injuries could bring many more cases in the near future.  Given that the guardrails have been in use since 2005, there could be hundreds of cases where victims did not realize that their injuries were partially caused by the guardrail that was supposed to minimize the harm in an accident.  This is an unusual product defect case that could snowball into a class action lawsuit if enough injuries and deaths are found to have been caused by the guardrails the past 10 years.

Car Dealers Often Prohibited From Telling Customers of Known Defects

In the record-breaking surge of auto defects in 2014, lawmakers and the general public are searching for answers on how widespread defects can go unreported to consumers.  Often, a simple repair or replacement of a part could mean the difference between life and death, as with the GM ignition switch defect which prevented airbags from deploying in accidents.  In that case, it is now public knowledge that GM intentionally hid the defect for 10 years, while to date it has caused at least 42 deaths.

The Car Dealer is Where Customers First Get Information

Most customers trust the dealer where they buy their vehicle to let them know if there are any problems or recalls that may affect the make and model that they own.  The repair shop at the local dealer will often be the first place that a defect may be noticed, and it should be standard policy to let vehicle owners know of safety issues.

However, automakers often instruct their franchise dealerships not to communicate problems with vehicle owners, unless there has been a publicly announced recall.  While this may seem hard to believe, dealers are actually coerced into silence about potential defects that could result in injury or death to drivers or passengers.  Automakers go as far as refusing to reimburse dealers for any repairs made to defects, if the dealer communicates with the customer or media about the potential problem. The dealer will have to absorb those costs called ‘chargebacks’ into their already slim margins.

Communication Bans on Service Problems Enforced Through Retaliation and Charge Backs

For example, if a dealer were to receive a service bulletin from its manufacturer, then unsolicited repairs can be made under the warranty, but other customers cannot be contacted to bring in their cars for inspection or repair.  Also, media outlets cannot be contacted with the contents of the service bulletin.  This in effect makes dealers into silent partners with automakers in concealing defects that could cause catastrophic injury or loss of life.  The threat of financial penalties shows how automakers are forcing dealers to comply, or pay the price.

While it is certain that many dealers communicate this information with customers in spite of the ban on sharing service bulletins, there is no reason to think that any customer ever has all of the information on the vehicle that they are driving.  Some states are considering legislation that would allow dealers to share these potential defects with customers, and would prohibit any retaliation by the automaker.

Given the fact that the car dealer is often the only point of contact by the customer with the company that makes their car, it is unjust that the dealer is forced into a role that prevents them from warning customers.  Car dealers and employees are often part of the same community as their customers, and it must be frustrating and demoralizing to see friends and neighbors injured when the dealer had the information to prevent an accident.

Update on GM Ignition Switch Recall: 92,000 More Vehicles To Start the New Year

In the never-ending ignition switch defect saga, GM has recalled an additional 92,000 vehicles this week to add to the millions already recalled.  The defect has been linked to 42 deaths so far, and it appears that the problem has no end in sight.  The most recent recall affects several different truck and SUV models, and despite the large number of vehicles involved, GM states that the defect should only affect around 500 vehicles, and that it simply makes the key hard to turn when it is hot inside the cab.

“Only 500 Vehicles” Affected Says GM

It is statements like this that test the credibility of the automaker when it is under the greatest legal scrutiny in its history.  How could GM possibly know that only 500 would be affected of the 92,000 recalled?  And if they have the exact number based on some series of parts numbers, why not just recall those with the highest probability of malfunction?  GM is probably erring on the side of caution now with any ignition related recall, but making random statistical estimates do not really serve those who may own the affected vehicles.

It seems like another attempt to pacify unrest in its customer base and the general public, by minimizing a problem that just wont go away.  The issue is that most customers will believe the estimate, and may not even bring their vehicle in, thinking there is only a .005 percent chance their vehicle is affected.  It is this type of corporate hubris that created the problem in the first place, where the ignition switch defect was intentionally hidden from inspectors and the public, apparently because it would have been too costly to replace.

Early Payout Offers May Lure Some Victims To Accept Low Settlement Amounts

In a related legal gambit, GM has set up a fund and is offering fatality victims $1 million for each death caused by the ignition switch defect, plus $300,000 for each surviving spouse and other beneficiaries.  They state this is a better approach for victims’ families than being a part of the numerous class action suits being filed, since it provides for an earlier payout than the protracted litigation that could take years.  While this may be true, any families of victims that take the payout will give up their right to sue for any further damages as part of the deal.

It is hard to say how much accident victims could be awarded via settlement or a trail verdict in this case.  However, GM’s non-disclosure of the defect for 10 years and the resulting lasting harm to customers could bring in amounts that far exceed their payoff offer.  GM is probably going to be in the grip of this defect recall for years, and the ongoing litigation is sure to reveal more culpability that will only increase the eventual damages awarded.

When corporations hide defects from customers, and those defects cause loss of life, litigation is the sole method to deter other businesses from the same practices.  The personal injury lawsuit is the only way for the individual to bring financial pressure on corporate behavior, and to be compensated for tragic personal losses.

Recall Fatigue May Prevent Vehicle Owners From Seeking Repair of Defects

While 2014 has seen a record number of recalls for vehicles with identified defects, there no guarantee that vehicle owners will heed the recall and come in for repairs.  One of the reasons for this is what is being called ‘recall fatigue’, where there have been so many recalls that vehicle owners either don’t take them seriously or are simply tired of going to the dealer for repairs.

Not every vehicle involved in a recall will have the defect.  Just because there is a recall does not mean that the problem is present in every vehicle make and model identified by the dealer.  However, the recall is a way to alert owners to potential problems, and prevent breakdowns or accidents.  While automakers have a duty to report known defects, owners also have to respond to the offer of repair or will take the risk that their vehicle is one of those affected.

How Recall Fatigue Could Affect Liability for Accidents

When a vehicle owner does not bring in their car for repairs in a recall, it brings up the question of how this may affect any claim for liability when an accident occurs.  If a manufacturer has identified the problem, and communicated directly with the owner then it could possibly affect liability if the recalled issue were to cause an accident.  The issue is the nature of the communication, and whether the owner received notice of the recall.

A simple public notice would probably not be sufficient, and the recall should be communicated through the mail, email or telephone.  Some dealers will contact customers directly, to make sure they know about the problem.  If the recall issue is communicated in clear terms, with an urgent request to come in for repairs, then the automaker has fulfilled some part of its duty to warn of defects.

Of course, this does not absolve the automaker completely of responsibility for their defective product on the market, but it does place some measure of fault on the owner if they are unwilling to make the repairs.  However, in some cases, the parts are not available or it is difficult to arrange for repairs, but the owner must make some attempt to have the defect corrected.  And if an accident occurs before a defect can be repaired, then the automaker is still potentially liable.

A good example of this is the recent recall of airbags by Honda for the defective inflator.  Honda does not have enough replacement airbags for customers at this point, so the owners have no choice but to drive with the defective airbag in their cars.  Any accident and injuries would still be the fault of Honda and the airbag manufacturer since there is no way to correct the defect and protect customer safety.

It is no wonder that consumers have recall fatigue when even widely known defects and risks cannot be quickly corrected.  If they are told they have to wait, they will simple forget about it and assume that it must not be as urgent as they thought.