How long has General Motors known there was an issue with the ignition switch? Can the new GM be sued for the recalls? Will sanctions against Russia hurt car companies?
Was there a cover-up on May 15, 2009, when, according to the New York Times, “data in the black boxes of Chevrolet Cobalts confirmed a potentially fatal defect existed in hundreds of thousands of cars.”
Is General Motors shielded by the bankruptcy they went through and if not, will the majority owners of the new General Motors have to pay?
During the bankruptcy General Motors was divided into two groups, the old GM, renamed Motors Liquidation Company, which is separate and independent from the old corporation and, according to documents, including the liabilities of the old General Motors. The new General Motors is named General Motors Company LLC. The new company retained four out of eight brands: Chevrolet, Cadillac, GMC, and Buick. Saturn, Hummer, Saab, and Pontiac were part of the liquidation process.
Who owned General Motors during those times?
On July 10, 2009, a new entity, General Motors Company, completed the purchase of continuing operations, assets and trademarks of General Motors Company. The “new GM” was mostly owned by the United States Government (60%) and Canadian governments (12.5%), which held 72.5 percent. A union health care trust called a Voluntary Employee Beneficiary Association (VEBA), held 17.5 percent, and 10 percent is held by the old GM, Motors Liquidation. As of December 2013, the United States government sold the last of its shares of stock.
Why would the new General Motors have to pay?
According to David Whiston, Senior Analyst, Morningstar, “The more significant concern, and at this point, an unknown cost is what GM will have to pay to settle the Justice Departments reported criminal investigation as well as civil lawsuits. Under the 363 sale from Old GM’s bankruptcy, GM is not legally liable for any accidents that occurred before July 10, 2009, but we would not be surprised if GM voluntarily pays at least $1 billion into a victims fund as requested by the Center for Auto Safety in a March 12 letter to GM CEO Mary Barra. Even if GM agreed with this request, it is possible that GM shareholders could file litigation to stop such a payment, claiming that voluntarily paying such a large amount violates GMs fiduciary duties to shareholders.”
Morningstar’s Whiston went on to say, “remain confident that GM has more than enough liquidity to handle any possible payments with automotive liquidity at year-end of more than $38 billion. A fine or settlement of even a few billion dollars is not a large decline in our fair value estimate when it is spread over about 1.85 billion diluted shares.”
I am not a lawyer, but I am concerned that General Motors has set a precedent, according to the aforementioned New York Times article, settling two cases out of court. GM told the New York Times, “G.M. has said it has evidence of 12 deaths tied to the switch problem, but it has declined to give details other than to say that they all occurred in 2009 or earlier. It says it has no conclusive evidence of more recent deaths tied to the switch.”
Reputation versus liability
The reputation of General Motors is at stake, and so is Mary Barras. Mary Barra is the newly appointed CEO, the woman who boldly said that GM would not make any more crappy cars. Barra, a veteran GM employee, has watched what Toyota went through. Toyota paid $1.2 billion for a recall of over 10 million vehicles related to unintended acceleration. According to an article written by Bloomberg, Toyota’s U.S. retail market share fell from 16.3 percent in 2008 to 13.5 percent last year, according to data provided to Bloomberg by IHS using Polk vehicle registration records.
Morningstar’s Whiston concedes, “The company is in a tough spot and may have to decide if it will pay money to victims even if it is not required to. It’s also important to note that many victims already settled with Old GM years ago. For now, we think investors should expect plenty more negative headlines and a media circus surrounding eventual congressional testimony by GM executives.”
Which cars are under the recall?
2003-2007 Saturn Ions
2006-2007 Chevrolet HHRs
2006-2007 Pontiac Solstices
2006-2007 Saturn Sky models
2005-2007 Chevrolet Cobalt
2007 Pontiac G5 models
2005-2006 Pontiac Pursuit in Canada
2007 Opel GT in Europe
2009-2014 Chevrolet Express and GMC Savana vans
2013-2014 Cadillac XTS
2008-2013 Buick Enclave and GMC Acadia
2009-2013 Chevrolet Equinox
2008-2010 Saturn Outlook
Russia, Ukraine, and car sanctions
President Obama is calling for more sanctions against Russia. At the 2014 Geneva International Motor Show Lou Ann Hammond, CEO, Driving the Nation, talked to Automotive executives and found out what a booming industry the car business is in Russia. Listen as she talks to John Batchelor, host of the John Batchelor radio show, and Mary Kissel.