Recall Woes Cost GM More Than $2 Billion, Lawsuits Continue

  • Sep 8, 2014
  • Christopher Placitella
  • Product Liability

In 2014, GM has announced 55 different recalls affecting almost 29 million vehicles. The last occurred on June 30 when the company announced recalls affecting more than 7 million vehicles.

The financial costs of these recalls continue to mount. In April, the company reported that the budget for repairing recalled vehicles with the ignition switch defect would be approximately $700 million, and that other unrelated recalls could cost another $600 million to fix. GM took a $1.3 billion charge in the first quarter of this year to cover the costs of recalls announced through the end of March. The company has stated that it could take another recall related charge of up to approximately $1.2 billion in the second quarter.

GM has also set aside $400 million to pay legal fees for lawsuits related to the recalls filed by victims and their families, but the Detroit News reports that the total could be as high as $600 million as more and more victims come forward. By comparison, GM’s advertising budget for 2012 was $2.15 billion and the company spent $1.3 billion on television ads alone in that year.

Department of Justice Commences a Criminal Investigation

In addition to the costs of fixing defective cars and paying legal claims, the federal government may hit GM with significant fines and penalties. The National Highway Traffic Safety Administration has already fined GM $35 million. Furthermore, the Department of Justice has reportedly opened a criminal investigation into whether the company knew its cars were defective and could lead to deadly crashes, but hid this information from the public. According to numerous media reports, GM may have waited 10 years to issue a recall after it first learned of the ignition switch problem.

The Justice Department’s criminal investigation could eventually lead to billions of dollars in fines and penalties. Industry experts expect GM to pay a large fine similar to the one that Toyota was forced to pay earlier this year. In March, Toyota agreed a pay $1.2 billion to the United States Department of Justice to resolve a criminal investigation alleging that the car company misled investigators regarding reports of sudden, uncontrolled acceleration in its cars.

GM Wrongful Death Claims

At the onset of the recall crisis, GM stated that only 13 deaths were linked to the defective ignition switches. As of August 26, however, 107 families have filed wrongful death claims with a compensation fund established by General Motors to reimburse victims and their families. The fund has received a total of 309 claims so far and will continue to accept claims until December 31.

GM has hired attorney Kenneth Feinberg to administer the compensation fund. Mr. Feinberg has overseen compensation funds for victims of the September 11th attacks and the BP Gulf of Mexico oil spill.

GM is also facing approximately 90 class actions arising out of recalled and defective vehicles. For example, a class action lawsuit filed in federal court in Florida by the owner of a Chevrolet Traverse with a defective “check/service airbag” indicator light filed a lawsuit. In trying to persuade the judge to dismiss the lawsuit, attorneys for General Motors argued that the plaintiff’s claims are “moot” because the company has recalled the affected cars and will pay to have the defect fixed. Attorneys for GM are also arguing the company’s bankruptcy filing in 2009 shields GM from liability for any injuries that occurred before the bankruptcy filing. It remains to be seen if this legal argument will be successful.

Author Bio: Christopher Placitella is a founding partner of the law firm Cohen, Placitella & Roth, P.C. An experienced litigator, Mr. Placitella represents individuals who have been harmed by all types of defective products, including defective medical devices and prescription drugs. Mr. Placitella has also established a national litigation group dedicated to effectively representing individuals who suffer from mesothelioma and other illnesses caused by exposure to asbestos.

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