What will the oversight of General Motors mean?

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You might remember General Motors failed to report the problem with the ignition switch to the National Highway Traffic Safety Administration. This May saw the announcement of the civil fine to be paid by GM. It’s $35 million. Million? you ask. When the civil fines levied on the banks has been measured in hundred of millions and, more recently, billions, the idea a multinational car manufacturer might only have to pay $35 million for an offense in which some people have died seems odd. For the record, the current level of fine proposed against French Bank BNP is $10 billion — an amount even a multinational bank might notice.

The whole point of a fine as punishment is that the amount set should strain the finances of the alleged wrongdoer. The intention is to impose a penalty, i.e. sufficient pain to deter the repetition of the offense. So if I am poor and earn $100 per week, a $10 would be a severe penalty, i.e. might deter me. But the same $10 fine would be meaningless to you if you earn $2,000 per week. That’s why laws give a discretion to the courts to set the amount of the fine. Judges are expected to adjust the amount payable to inflict pain.

When not less than 13 people have died as a result of GM’s failure to take action, $35 million seems low. Why? In February, 2014, GM announced that its net income for 2013 was $3.8 billion on a gross revenue of $155.4 billion. So after taking out all the expenses and charges allowed by the law, GM still had $3.8 billion left over. The payment of a fine of $35 million is therefore a nonsense. Yet, this is apparently the maximum that can be imposed. Yes, in its desire to encourage for-profit corporations to cooperate, the amount of fines has been capped. The theory says that naming the corporations who break the law shames them into improving their behavior. As if! All corporations do is treat the fines as a business expense and keep the same money-making approach as before.

So the big question is whether the “unprecedented” oversight requirements will be any better deterrent. GM has been ordered to make internal changes to improve the processes for designing and monitoring safety-critical components. In theory, therefore, the employment of key staff responsible will be terminated and new, better qualified people will replace them. There will be a culture change. GM will not longer be obsessed with secrecy to protect its commercially sensitive data. The NHTSA will be allowed full access to ensure faults are identified and resolved with the minimum delay.

Frankly, this seems unlikely to work on paper. GM will continue to apply cost-benefit analysis to decide whether it’s cheaper to replace parts or pay trivial fines if caught. All that is likely to happen is that GM will hide its real decision-making from whoever gets sent by the NHTSA and business will go on as before. Lawyers suing GM are waiting and watching developments.

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