General Motors Co. (GM) revealed that it will appeal to a New York federal bankruptcy judge for protection against legal claims related to the late recall of vehicles with defective ignition switches. The company is currently facing more than 36 ignition switch lawsuits.
General Motors said that claims related to actions by the old GM before going into bankruptcy should legally belong to the old company which now operates under the name of Motors Liquidation Co. The new GM formed post-bankruptcy enjoys legal protection against the lawsuits filed before the bankruptcy. During bankruptcy in 2009, General Motors faced 2,500 lawsuits of different types.
To its defense against the faulty switch recall, the company stated that though the recall of 2.6 million vehicles with faulty ignition switches was initiated in Feb 2014, the problem traced back to 2001. However, the company is focused on resolving the issue and is considering compensation for the families of the crash victims.
Recently, CEO of General Motors, Mary Barra announced that the company has hired Kenneth Feinberg to find out ways to compensate the victims of the accidents due to the ignition switch fault. Kenneth Feinberg is known for handling the compensation funds for the victims of 9/11, the Boston Marathon bombing and the BP (BP) oil spill. Allocation of separate funds for victims is not yet confirmed.
In Feb 2014, General Motors announced the recall of 2.6 million older-model small cars associated with 31 crashes and 13 front-seat fatalities due to faulty ignition switches. The recalled vehicles mainly include Chevrolet Cobalts and Saturn Ions.
Considerable costs associated with the repair are a potential reason behind the delayed recall. General Motors identified the switch problem in 2001. As a matter of fact, the engineers provided different options to rectify the defect but none of them were accepted due to cost concerns.
According to General Motors, a heavy key ring or uneven roads can cause the ignition switch to shift away from the run position, thus turning off the engine and electrical power. In such a situation, the front air bags will not inflate in case of a crash.
General Motors currently holds a Zacks Rank #5 (Strong Sell).
- General Motors