Business: End of the Great Engine Flap

When Chicagoan Joseph Siwek asked his mechanic to do some work on his new 1977 Oldsmobile last winter, he was angered to discover that the engine under the hood was not an Olds Rocket V-8 but a less expensive Chevrolet power plant. The discovery led to a revelation that GM had put Chevy engines not only into Oldsmobiles, but into some 1977 Buicks and Pontiacs as well; GM became the target of about 250 state and private lawsuits. Last week, after months of legal maneuvering, the company reached a settlement with 44 state attorneys general, who had been suing on behalf of all “Chevymobile” buyers in their states, that should end the great engine flap.

GM will offer about 75,000 Chevymobile owners living in the 44 states $200 in cash each, or about $120 more than the estimated difference in value between Chevy and other engines. The company will also give each car owner a transferable three-year or 36,000-mile warranty. The legal officers of California, Iowa, Kentucky, Louisiana and Tennessee refused to accept the settlement, presumably because they still hope to collect fines and get morefor car owners in their states by pressing their suits. It is quite likely, however, that the U.S. district court in Chicago will both approve the settlement and rule that it should be applied to all 93,000 car buyers across the country who gotChevrolet engines in other GM cars. In that event, the cost to GM would be about $40 million—one of the largest awards ever, if not the largest, in a consumer-protection case.

GM still insists that it did nothing wrong: if a car buyer paid for a 350-cu. in., 170-h.p. engine, that is exactly what he got—though some owners, like Siwek, experienced delays getting their cars repaired because parts for Oldsmobile, Pontiac and Buick engines did not always fit the Chevy motors. The $40 million will hardly be a severe financial penalty to GM, which has earned as much as $1 billion profit in a single quarter.

The case may have a lasting effect in showing the power of a coalition of state legal officers. Illinois Attorney General William Scott, who started the whole affair by investigating Siwek’s complaint, notes that this is the first time so many state attorneys general have banded together to fight a case on behalf of consumers against a giant national company. Says Scott: “We really formed a national public service law firm that could prove effective again in the future” if another company gives grounds for reactivating the coalition.