Corporate fraud generally isn’t fatal — except in a case like the one involving Toyota five years ago, when it lied about dangerous defects it knew about just to save money and spare its public image.
It has been paying a steep price ever since, culminating with a $1.2 billion fine levied by the U.S. government last week. The fine was much-deserved, and one can only hope it will send a stern warning to other automakers.
Most consumers can forgive mistakes like those that plagued several Toyota models in the late 2000s with sudden-acceleration problems: sticky accelerators on 2.3 million cars and floor mats that wedged against the accelerators on 5.2 million cars. What was unforgivable was the way the automotive giant handled it — denying it to the hilt, both to the public and to government investigators, until the FBI produced email evidence that proved company executives knew all along there was a problem.
Fessing up and fixing it right away would have been so much easier — and cheaper. Company officials at one point bragged that stonewalling had saved them $100 million, but given the fines, lost sales, civil lawsuits and lasting damage to their once-stellar reputation, they clearly miscalculated.
In announcing the fine Wednesday, Attorney General Eric Holder promised to aggressively investigate charges of this sort against other automakers, and to hold individuals and corporations accountable. That’s unquestionably good news for consumers, but probably bad news for General Motors, which is involved in its own public relations nightmare relating to the recall of 1.6 million small cars for faulty ignition switches. At least 12 deaths have been linked to the defect, which has caused engines to stall unexpectedly. An additional recall of 1.2 million SUVs for defective air bags was made last week.
All told, GM expects to spend $330 million on the recalls this year, but as with Toyota’s case, that will pale in comparison to the fines and lawsuits that are likely if GM is found to have covered up.