GM may end up paying billions of dollars for recall-related issues

In a year of record-breaking recalls, General Motors may be forced to pay billions of dollars in fines, charges and settlement funds

In a year of record-breaking recalls, General Motors may be forced to pay billions of dollars in fines, charges and settlement funds, according to recent media reports. The Motley Fool put an early price tag on the company’s total bill at around $6 billion.

“It’s absolutely a very substantial amount of money,” Kyle Logue, a law professor at the University of Michigan who specializes in torts, told InsideCounsel in an interview.

He points out that the amount also sends a signal to GM and other companies that they have to take safety seriously and make timely disclosures of information.

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Further reading:

GM’s legal department increasingly the focus of investigations after ignition switch defect

GM report leads to the dismissal of 15 employees

GM’s legal department reportedly being investigated in internal inquiry, company pays record fine

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Yet, he praised the company’s decision to come up with a compensation plan to be administered by Attorney Kenneth Feinberg. “The compensation plan was a good move by GM,” Logue said. “I think it’s a pretty reasonable response…. It’s a savvy move on their part.”

GM’s fines come a few years after the company was bailed out, and a great deal of money was spent to keep the company afloat. “You don’t want to jeopardize that,” Logue said.

But the billions of dollars in costs is something that GM likely can afford.

Michael Smitka, a professor of economics at Washington and Lee University and co-author of the Autos and Economics blog, told InsideCounsel, “Several billion dollars is painful, but that’s not fatal to a company the size of General Motors.”

The GM brand looks like its can survive, as well. “Consumers are not viewing GM as a disaster area,” Smitka said. He cited data which showed that overall GM market share increased by 2.1 percent from March 2014 to June 2014.

On the other hand, the amounts involved could potentially bankrupt something like an airbag manufacturer. Several suppliers may face that with treble damages in ongoing auto-parts antitrust lawsuits.

Long term, it would be useful to follow the Takata case, which was a large supplier of airbags, Smitka said. They have not gotten the same kind of headlines as GM, but it may have an impact on the industry, he added.

Tech Times reports at least eight car makers need to recall vehicles equipped with Takata air bags. Millions of cars can be impacted by the recalls. The New York Times explained, “A defective inflator could explode in a crash, sending shards of its metal casing into the passenger compartment. The inflator was made by Takata Corporation, which has said the propellant inside the inflator was not properly prepared and was too powerful.”

One other noteworthy point about GM. Toyota was assessed a criminal fine, Logue said, and there is still a question if GM will be fined likewise. Toyota paid $1.2 billion to end a criminal probe into the sudden acceleration inquiry by the government, InsideCounsel reported.

Meanwhile, GM is expected to undergo further grilling by officials because the issue “at the heart of a criminal investigation by the Justice Department” is whether “GM, in its interaction with safety regulators, obscured a deadly defect that would also injure perhaps hundreds of people,” according to a report fromThe Times.GMrepeatedly chose not to answer questions from government officials on what caused a fatal crash, the newspaper has reported.

On July 17, GM General Counsel Michael Millikin is likely to testify before the Senate, "We had lawyers at GM who didn't do their jobs, didn't do what was expected of them. Those lawyers are no longer with the company,” according to a report from The Wall Street Journal.

In fact, three senior lawyers were among the 15 GM employees who lost jobs following the company’s internal investigation led by former U.S. Attorney Anton R. Valukas, InsideCounsel reported.

In addition, looking ahead, the fines and investigations of GM have raised some questions whether automakers will be reluctant to innovate in the future. This comes as the auto sector is developing autonomous and semi-autonomous cars.

“The future of the automotive industry will have to grapple with potential liability concerns,” Logue explained.

Contributing Author

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Ed Silverstein

Ed Silverstein is a veteran writer and editor for magazines, websites and newspapers. A graduate of Harvard's Kennedy School of Government, he has won several...

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