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

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.