Transportation Secretary Wants to Raise Recall Penalties

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The Obama administration's latest transportation bill aims to sharpen federal penalties for automakers that drag their feet on recalls, increasing fines to nearly nine times the current amount. That could change the way automakers issue recalls, as well as just how often they do it.

GM Begins to Replace Faulty Ignition Switches

Transportation Secretary Anthony Foxx told reporters Tuesday he wanted to raise the maximum civil penalty leveled by the National Highway Traffic Safety Administration against automakers that fail to recall vehicles soon enough. He wants it to be $300 million — a massive leap from the current $35 million, according to Reuters.

Clarence Ditlow, director of the Center for Auto Safety, told the Detroit News in March that the $35 million fine amounts to "chump change." Ditlow has a point: GM, whose faulty-ignition switches have led to 2.6 million recalled cars in 2014, reported $3.8 billion in 2013 profits.

The steep hike would take a bite out of those profits, or any other automaker's. NHTSA fines aren't the only federal penalties. In March 2014, Toyota settled a Department of Justice probe for $1.2 billion — the largest ever imposed on an automaker by U.S. prosecutors — over how it handled unintended-acceleration recalls in 2009 and 2010. That came atop massive civil penalties, including an estimated $1.1 billion spent in 2012 to settle a class-action lawsuit over the same recalls.

Add it all up and Foxx's comments illustrate a new squeeze on automakers to get with the program on recalls, or else.

According to the DOT, the bill "establishes harsher penalties for manufacturers that refuse to address defective and dangerous parts that endanger the public." Of course, that’s not all it does. The $302 billion, four-year bill is called the GROW AMERICA Act — an 18-word acronym — and the bulk of it funds the Highway Trust Fund, which pays for a big chunk of public-road maintenance. Fuel taxes have traditionally funded the HTF, but Reuters reports stagnant fuel use means it could run dry as soon as August.

The act also gives federal officials the authority to "expeditiously remove automobiles from the market when a defect is first discovered." This comes a day after two U.S. senators called on the DOT to urge owners of cars involved in GM's ignition recall to stop driving them; GM has insisted the cars are safe, provided owners insert the key without any accessories attached to the ring.

A few other details caught our attention. The DOT says the bill will provide billions of dollars to improve the safety of rural roads and fund highway-safety research and improvements. It also promotes graduated teen driver's licenses and improves drunken driving prevention laws, including ignition interlocks and open-container laws.

Finally, it gives federal officials the authority to require rental-car companies to participate in recalls. Foxx told reporters he wants to force those companies to repair any rental cars under recall before renting them out — something most have already pledged to do. The comments echo a bipartisan bill introduced in 2013 that aimed to do the same thing but has since stalled in Congress. Analysts say around 23 percent of recall work goes undone; it's unclear what portion of that can be attributed to rental cars.

About half the funding for the proposed Grow America Act will come through business tax reforms. The bill is now in Congress.

Mark Wilson/Getty Images News

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