A proposed legal settlement that could cost Ford Motor Co. as much as $1 billion prompted a judge Monday to postpone a class-action trial on allegations that faulty ignition switches caused millions of cars and trucks to stall.
The proposed deal comes four months after the judge ordered Ford to recall as many as 2 million vehicles in California. If approved, it would expand the remedy to 5 million vehicles nationwide and replace the recall with a warranty allowing owners to be reimbursed for replacing ignition switches.
A settlement would limit the financial exposure to Ford, already involved in a recall of tires on its Ford Explorers, which are being investigated in connection with more than 100 highway deaths. But Ford shares dropped 4.2 percent to $23.73 Monday by late afternoon.
Analyst David Healy, with Burnham Securities Inc., blamed news of the ignition switch settlement as well as media reports about the Big Three automakers’ loss in market share and a decision by UBS Warburg to downgrade Ford stock from “hold” to “reduce.”
“I like Ford long-term, but I have a hard time seeing it in the short term,” Healy said. “It’s a matter of 20/20 hindsight. I think Ford knew of the problem but should have taken care of it years ago.”
Alameda County Superior Court Judge Michael E. Ballachey has said Ford misled government inspectors and was living in an “Alice and Wonderland” dreamland by denying that defective ignition switches were installed on 23 million vehicles.
“I think this is basically a win for consumers,” Jeff Fazio, a lead attorney in the class-action case against Ford, said Sunday, before the judge imposed a gag order. “It could have been years before the cars were fixed, but with this it could come soon.”
Ballachey met in his chambers Monday with attorneys for about 45 minutes and then emerged to make the only public comment he allowed: “We’ve had discussions on the progress of settlement talks. Those are ongoing,” he said. Ballachey also sealed the transcript of the closed-door meeting.
He scheduled the next meeting with attorneys for Aug. 20, and delayed jury selection for a week, to Aug. 27.
Earlier Monday, Ford issued a statement saying “the cost of $750 million to $1 billion currently being speculated about in the media are substantially overstated.”
Fazio based the $1 billion figure on court records in which Ford has said it would cost $150 or more to replace each switch.
Ford has already settled hundreds of wrongful death, injury and other lawsuits in connection with the stalling allegations. However, the Detroit automaker denies that the ignition devices are defective and cause the vehicles to stall.
“All government data, 18 years’ worth, prove that our vehicles are as safe or safer than other vehicles,” the company said Monday, adding that investigations by the National Highway Transportation Safety Administration found no safety defect.
Ballachey, however, has said that evidence produced in the case shows that Ford repeatedly deceived regulators about problems with the switch.
The suit challenged Ford’s placement of the thick film ignition (TFI) module, which regulates electric current to the spark plugs. In 300 models sold between 1983 and 1995, the module was mounted on the distributor near the engine block, where it was exposed to high temperatures.
Ballachey, the nation’s only judge to order a vehicle recall, found last year that Ford was warned by an engineer that high temperatures would cause the device to fail and stall the engine. Ford’s own documents show the company confirmed the problem in internal studies, and could have moved the module to a cooler spot for an extra $4 per vehicle.
Under Sunday’s announced agreement, Ford said it would replace the ignition devices on all Ford vehicles nationwide that have stalled and have no more than 100,000 miles, which is an estimated 500,000 to 650,000 vehicles in California and an estimated 5 million nationwide.
The agreement also says Ford will extend all warranties to 100,000 miles for affected vehicles and pay to replace the ignition if it stalls and needs replacing before the new 100,000 mile warranty is up.
“A lot of hard work has gone into reaching an agreement and we hope the judge supports it and brings this issue to a close,” said Kathleen Vokes, a Ford spokeswoman.
Ballachey’s recall ruling was in the preliminary stages of the case, which was expected to go to trial later this month.
Ballachey said Ford concealed the stalling information from federal safety regulators, who were studying hundreds of complaints about Ford vehicles stalling. The government found no safety problems with the modules, but a NHTSA official said the government would not have closed the case if Ford had given the agency key documents unveiled in the class-action case.
“Had that information been in hand, I would not have closed either investigation without appropriate resolution,” said Michael B. Brownlee, the former director of the NHTSA’s defects investigative arm.
Fazio said he wants to settle because, under the recall order, it could have taken years, if ever, before the vehicles would have been fixed. That is because Ford had said it would appeal the recall order, which affects all 1983-1995 Ford models in California.
The automaker said judges do not have the same power as does the NHTSA to order a vehicle recall. Under the deal, the vehicles could be fixed or the cost of previous replacements could come as early as next year, Fazio said.
The case is Howard vs. Ford, 763785-2.