GM Seeks Immunity From Some Recall Lawsuits, As $400M Set Aside

Although General Motors (GM) has set aside $400 million to cover some of the settlement costs associated with defective ignition switches in millions of vehicles, the automaker continues to maintain that it should not be responsible for personal injuries and wrongful deaths caused by other defects in vehicles sold before a 2008 bankruptcy and reorganization.

General Motors has recalled more than 30 million vehicles this year, for a variety of reasons, which have devastated the company’s profits. 

About 2.56 million of those impacted include certain Chevy, Pontiac and Saturn vehicles that have a specific ignition switch problem that has been linked to dozens of serious and fatal injuries in accidents, where the vehicles suddenly shut off and prevented the airbags from deploying.

After acknowledging that the company has known about the ignition switch problems for years, yet failed to recall the vehicles or take other steps to address the issue, General Motors set up a settlement fund for injuries and deaths associated with airbag failures in vehicles with those defective switches.

This week, the company indicated in their second quarter earnings report that $400 million has been aside to to pay for the fund, and that number may rise to $600 million, GM warned investors.

“There is no cap on this program, but this charge is the company’s best estimate of the amounts that may be paid to claimants,” the report states. “Due to the unique nature of the program, this estimate contains significant uncertainty and it is possible the total cost could increase by approximately $0.2 billion.”

Although GM is taking steps to highlight their willingness to compensate victims of accidents associated with the defective ignition switches, the auto makers continues to suggest that it should not be required to accept responsibility for injuries or deaths associated with other defective vehicles sold before the bankruptcy proceedings, even though those defects were not disclosed until recalls were issued this year.

General Motors indicated this week that it intends to ask U.S. Bankruptcy Judge Robert Gerber to clarify the issue next month, maintaining that they want a decision on that issue before considering any settlement negotiations in personal injury and wrongful death lawsuits brought over these other vehicles.

General Motors Recall Problems

Problems for the auto maker this year began with a GM ignition switch recall issued in February, which was subsequently expanded several times to ultimately include more than 2.5 million Chevy Cobalt, Chevrolet HHR, Pontiac G5, Pontiac Pursuit, Pontiac Solstice, Saturn Ion and Saturn Sky vehicles.

Subsequent investigations by GM and by federal regulators revealed that the company knew about the ignition switch problem for more than a decade before issuing the recall, leading to a $35 million fine from the National Highway Traffic Safety Administration (NHTSA). An internal report conducted following the recall described a a “pattern of incompetence” among employees of GM, where many people knew the vehicles should be recalled but did nothing.

General Motors has acknowledged that at least 16 deaths and more than 60 other serious injuries may have occurred in accidents linked to the defective ignition switches. However, consumer watchdog groups, the NHTSA and some GM officials estimate that number is actually much higher.

In the wake of the discovery, GM has re-examined years of safety problems reported in connection with vehicles, recalling tens of millions of other vehicles, touching virtually every brand sold by the Detroit auto maker.

This week the company announced that the cost of the recalls have eviscerated its bottom line, dropping them down to just $0.2 billion in net income for the second quarter of 2014. According to a GM, about $1.3 billion in losses were linked solely to the recalls. That is not including the $400 billion for the compensation fund, which does not cover the legal costs involved with the roughly 130 lawsuits the company now faces.

The numerous recalls have led to a mounting number of GM recall lawsuits, including personal injury, wrongful death and claims brought on behalf of vehicle owners whose vehicles have diminished in value. The company has also been hit with class action lawsuits by investors.

GM has vowed to fight the economic loss claims, and maintains that any injury or death claims sold by the “old GM,” as the company existing before 2009 is known, should be dismissed because that company legally no longer exists.