For more than four years, General Motors (GM) struggled to shed the loser image of a corporation that needed a $50 billion taxpayer bailout in 2009 to survive a self-inflicted near-death experience. Now, in the wake of a February recall of 1.6 million Chevrolet Cobalts and other discontinued models, GM’s much-derided status as “Government Motors” has unlikely appeal. Company lawyers are counting on its 2009 bankruptcy arrangements as a bulwark against a litigation threat that grows more ominous by the day, following GM’s admission that it knew of faulty ignition switches more than a decade ago and failed to fix the problem.
Whether or not the GM legal strategy holds up, the recall mess has revived the company’s reputation for unreliability and created a crisis for Mary Barra, its new chief executive and the first woman to lead a major auto manufacturer. The carmaker took a $300 million charge in its first quarter to cover the costs of various recalls, including a new one announced on March 17, covering 1.55 million newer models such as the Buick Enclaves and GMC Acadias that have faulty air bags and Cadillac XTS sedans with brake flaws that may result in overheating or engine fires. Detroit has had better months.
For the moment, the balky ignition systems pose the most serious legal threat to GM. If bumped or weighed down by a heavy key chain, the switch can shut off engines and power systems and disable air bags, the company has acknowledged. For drivers, having the car go stone dead in 60-mile-per-hour freeway traffic is nothing short of terrifying. For plaintiffs’ lawyers, the scenario translates to courtroom gold.
The manufacturer so far has linked 31 crashes and 12 deaths to the defects found in certain smaller Chevrolets, Pontiacs, and Saturns made between 2003 and 2007. In cold statistical terms, a dozen deaths over a decade doesn’t sound like a disaster. Some 30,000 people die every year on America’s roads; manufacturers in the U.S. have recalled 38 million cars in just the past two years. None of the defective GM models are in production any more, so the universe of ignition-related fatalities should be limited.
What’s the big deal, then? First there’s the dismaying fact that some GM employees have known about the ignition flaw since 2001 and failed to fix it. “The process employed to examine this phenomenon was not as robust as it should have been,” GM has said with exquisite understatement. Having quietly settled a couple of ignition defect lawsuits over the years, GM had already turned over thousands of pages of internal documents to plaintiffs’ lawyers, some of which show worried discussions among engineers about the problematic switches. Combine consumer deaths with an admitted failure to act promptly—the fatality list is bound to grow now that trial lawyers are advertising for cases—and you’re looking at allegations of a coverup: Which top executives knew what, and when did they know it?
GM refuses to answer inquiries about how many suits have been filed since the recall, but you can bet the figure will grow in coming weeks. The Justice Department has begun a criminal investigation to supplement probes by the Department of Transportation and various congressional committees. The dirty laundry will come out.
Not to worry, say Wall Street analysts and attorneys sympathetic to GM. The company’s bankruptcy restructuring buried pre-2009 liabilities, including those related to product defects, in the same grave that contains the remains of the “old” GM. The “new” GM got the productive assets and operations, free and clear. In a March 12 research note, JPMorgan Chase analyst Ryan Brinkman predicted the financial costs of the ignition-related recall would be “de minimus,” a mere trifle. Harvey Miller, GM’s lead outside bankruptcy lawyer, says the liability shield will hold. The time to litigate pre-2009 claims, Miller insists, “has long passed.”
Well, maybe. The prospect of showing corporate deceit—and the accompanying potential of punitive damages—has plaintiffs’ lawyers preparing a frontal assault on the Chapter 11 defense. On March 14, Bob Hilliard, an injury attorney in Corpus Christi, Tex., filed a proposed class action in federal court seeking $6 billion to $10 billion for the lost value of cars affected by the February recall. Hilliard separately represents the families of two teenagers who died in a 2006 crash of a Chevy Cobalt in Wisconsin. He alleges that the company improperly failed to disclose the extent of its potential liability during Chapter 11 proceedings.
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