Attorney Kenneth Feinberg, the US’s most well-known compensation expert, is scheduled to reveal the terms of General Motors’ plan to pay victims of crashes caused by bad ignition switches on Monday.
GM CEO Mary Barra has said there will be no cap on payments.
Also, GM won’t have any say in Kenneth Feinberg’s awards, she told a US House subcommittee during a hearing earlier this month.
“He will have complete independence,” Mary Barra said under questioning.
“General Motors wants to reach with this compensation program everyone who lost a loved one due to this issue, or who suffered serious physical injury.”
GM says the faulty switches are responsible for at least 54 crashes and more than 13 deaths, but lawyers and lawmakers say the death toll is closer to 100, with hundreds of injuries. That would send GM’s payments into the millions, if not billions of dollars.
Kenneth Feinberg is scheduled to reveal the terms of GM’s plan to pay victims of crashes caused by bad ignition switches
The company was sitting on a $27 billion cash stockpile as of March 31. So far, it has announced or taken charges of $2 billion for recall expenses.
Kenneth Feinberg, who also administered the government’s $7 billion fund for the 9/11 victims, is likely to follow a similar plan in the GM case, with detailed formulas setting payments based on severity of injuries and age. The average award to the 2,880 families who filed death claims from September 11, 2001, was $2.1 million. The fund also paid an average of about $400,000 each for the 2,680 accepted claims of injuries; the smallest injury award was $500, the largest $8.6 million.
The 9/11 fund was set up to protect financially troubled airlines from thousands of potential lawsuits. It was a success, limiting the number of lawsuits to about 80.
The GM compensation likely will be limited to victims of crashes of older small cars, of which GM recalled 2.6 million earlier this year because the switches can cause engines to stall, shutting off power steering and brakes. That can cause drivers to lose control of their vehicles and also disables the air bags. The cars include the Chevrolet Cobalt and Saturn Ion, both of which are no longer made.
Kenneth Feinberg could use air bag activation to decide if people are paid. If the air bags deployed in an accident, that means they were not disabled by the switches, so the switches were not at fault.
GM has said Kenneth Feinberg would start taking claims August 1.
Mary Barra said she did not know how much the company would have to spend to settle the claims.
To get a payment, victims would have to agree not to sue GM. The company is vulnerable to legal claims because it has admitted knowing about the switch problem for more than a decade, yet it didn’t recall the cars until this year.
Kenneth Feinberg is scheduled to hold a news conference in Washington on Monday to release details “including eligibility, scope, rules for the program, and timing of submitting claims,” a spokeswoman for the attorney said in an email. The program also will launch a website on Monday.
GM has accepted the findings of a “brutally tough, deeply troubling” report into recalls of its Chevrolet Cobalt over ignition problems which have been linked to 13 deaths.
The carmaker also said it would launch a compensation fund for crash victims and their families.
CEO Mary Barra said the report, which was carried out by former US Attorney Anton Valukas, found “the Cobalt saga was riddled with failures”.
She said 15 employees have been fired.
Five other workers who acted “inappropriately” have been disciplined.
To date, GM has recalled 2.6 million cars with the defective switch.
GM has accepted the findings of a troubling report into recalls of its Chevrolet Cobalt over ignition problems
It took the carmaker more than a decade to report the ignition switch failures, in which the switch can slip out of the “run” position and effectively shut down the car, causing the driver to lose control.
Although the problem has been linked to 13 deaths so far, lawyers for victims put the total at closer to 60.
Mary Barra, in announcing the results of Anton Valukas’s report which involved over 200 employee interviews and more than 40 million documents, promised to “fix the failures in our system”.
However, in a statement, GM emphasized that the report had found no conspiracy or cover-up.
“The Valukas report confirmed that Mary Barra, [and other GM executives] Mike Millikin and Mark Reuss did not learn about the ignition switch safety issues and the delay in addressing them until after the decision to issue a recall was made on January 31, 2014,” GM chairman Tim Solso said.
Last month, GM paid a $35 million fine – the maximum allowed by US law – for its failure to report the ignition switch problems in a timely manner.
Analysts said that GM was hoping this report would be the final word on the matter.
The compensation fund will be run by Kenneth Feinberg, who also led claims processing in the wake of September 11 and the BP oil disaster in the Gulf of Mexico.
“I will be spending the next few weeks seeking advice and input from all interested parties as to the terms and conditions of such a program,” said Kenneth Feinberg in a statement.
He said the fund would start taking claims on August 1.
GM shares barely budged in the wake of the report. Earlier this week, it reported its best May sales in seven years.
GM has seen its 2014 Q1 profits hit by a $1.3 billion charge to cover the cost of a huge recall of cars over defective ignition switches.
The faulty switches could turn off the engine, disabling the airbags and have been linked to at least a dozen deaths.
General Motors says it also incurred $300 million in restructuring costs, mostly in Europe.
As a result net income was $125 million, compared with $865 million in the same period last year. Sales came in at $37.4 billion, up from $36.9 billion in 2013.
GM said that of the $1.3 billion recall charges, some $300 million was to cover the cost of courtesy cars.
GM has seen its 2014 Q1 profits hit by a $1.3 billion charge to cover the cost of a huge recall of cars over defective ignition switches (photo Reuters)
“Obviously, the recall campaign charges in the first quarter overshadows the headline results, but if you look underneath that, we had strong performance across the board,” chief financial officer Chuck Stevens said.
It was GM’s worst quarterly performance since it posted a net loss after leaving bankruptcy protection in 2009.
The company had raised vehicle costs during the quarter, which helped boost operating profits by $1.8 billion.
In North America, GM experienced higher sales of its more lucrative versions of its redesigned Chevrolet Silverado and GMC Sierra full-size pickup trucks.
“The performance of our core operations was very strong this quarter, reflecting the positive response of customers to the new vehicles we are bringing to market,” said GM CEO Mary Barra.
“Our focus remains on creating the world’s best vehicles with the highest levels of safety, quality and customer service, while aggressively addressing our business opportunities and challenges globally.”
During 2014 Q1 the company was also hit by another charge of $419 million, “related to changing the exchange rate GM uses for re-measuring the net assets of its Venezuelan subsidiaries”.
General Motors is accused by US Congress of a potentially criminal cover-up of its defective ignition switches.
Lawmakers on Capitol Hill fumed at the lack of answers from GM’s new CEO Mary Barra during a second day of hearings Wednesday into why the carmaker waited a decade to recall cars with the deadly flaw.
Members of a Senate subcommittee also said GM should tell owners of the 2.6 million cars being recalled to stop driving them until they are repaired.
However, Mary Barra gave assurances that the cars, mainly Chevrolet Cobalts and Saturn Ions, are safe to use while owners wait for the replacement part, saying she would let her own son get behind the wheel if he took certain precautions.
GM has linked the switch to 13 deaths and dozens of accidents. Others, including relatives of some victims, have a higher count of fatalities.
The automaker has said the ignition switch can move from the “run” position to the “accessory” position because of weight on the key chain. That causes the engine to shut off, disabling power steering, power brakes and the front air bags.
As she did Tuesday at a House hearing, Mary Barra said many of the answers Congress is seeking will come out in an internal GM investigation that should be completed in 45 to 60 days. She also said she was unaware of certain details about GM’s handling of the problem – an assertion that frustrated some of the senators.
“You don’t know anything about anything,” Senator Barbara Boxer, D-California, said.
Image source Wikimedia
Mary Barra also tried to assure lawmakers that GM is now more focused on safety and the consumer. Few sounded convinced.
Senators aggressively questioned Mary Barra about how GM approved a replacement switch in 2006 but never changed the part number. Failing to change the number makes the part harder to track. In this case, anyone investigating the cars wouldn’t know why earlier switches were failing at a higher rate than later ones.
While Mary Barra called the failure to change the part number “unacceptable,” several members of the panel implied that it was done intentionally by a person or group within the company.
“I don’t see this as anything but criminal,” said Senator Kelly Ayotte, R-New Hampshire, a former prosecutor.
Senator Richard Blumenthal, D-Connecticut, who is also a former prosecutor, told Mary Barra that the more he learns about GM, “the more convinced I am that GM has a real exposure to criminal liability”.
The Justice Department is conducting a criminal investigation of GM’s handling of the recall. The GM CEO promised the company will cooperate.
Mary Barra said the company has not yet fired any employees in connection with the recall. But she said if inappropriate decisions were made, GM will take action, including firing those involved.
As she began her testimony, Mary Barra faced an angry and skeptical Senator Claire McCaskill, D-Missouri – the head of the subcommittee – who recounted the story of a woman who died in an accident involving a faulty switch.
Claire McCaskill said GM had “a corporate culture that chose to conceal rather than disclose.”
She also dismissed Mary Barra’s claim that there is a new culture at GM. She said that when emerging from bankruptcy in 2009, GM had ample time to recall cars with the faulty switch.
GM did not begin recalling the vehicles until February.
Mary Barra said GM has already provided 13,000 loaner cars to drivers who are concerned. But she said the company’s testing on different types of roads shows the cars are safe as long as there is nothing but the ignition key on the key chain.
In 2015, GM entering a deferred prosecution agreement with the New York Office.
In September, 2018, U. S. District Judge Alison Nathan dismissed the criminal cases against General Motors. New York prosecutors told Nathan the car maker paid over $2.6 billion in penalties, fines and settlements.
GM still faces pending civil lawsuits, but the government has finished monitoring the company as per bringing state or Federal charges.
General Motors is recalling 824,000 more cars over defective ignition switches that have caused some engines to shut off and to disable airbags.
GM said it was recalling a variety of models made between 2008 and 2011, in addition to 1.6 million cars made before 2007 that were recalled last month.
The carmaker said it was unaware of deaths caused by the flaw in the 2008-2011 models.
But the problem has been linked to between 12 and 303 deaths in crashes.
Separately on Friday, GM halted sales of some models of the popular Chevrolet Cruze car.
General Motors is recalling 824,000 more cars over defective ignition switches
GM did not give details of the reasons behind its move, which affects models with 1.4 litre turbo diesel engines, nor did it say whether the sales halt affects markets outside the US.
The recall of the 2008-2011 models announced on Friday adds to the 1.6 million cars the company has already recalled over reports of the faulty ignition switch.
“We are taking no chances with safety,” GM chief executive Mary Barra said in the company’s announcement.
“Trying to locate several thousand switches in a population of 2.2 million vehicles and distributed to thousands of retailers isn’t practical. Out of an abundance of caution, we are recalling the rest of the model years.”
The models affected by Friday’s recall are the Chevrolet Cobalt and HHR, Pontiac G5 and Solstice, and the Saturn Ion and Sky.
At issue is a flaw in the manufacture of the ignition switch that causes the key to shift on its own from the “run” position to the “accessory” or “off position”, even while the car is driving at full speed on the road.
That can shut off the car’s engine and disable the airbags, with potentially disastrous consequences.
Until the cars can be recalled and the ignition switches replaced, GM recommends customers remove all items, including the key fob, from their key rings, using only the vehicle key in the ignition switch.
GM has admitted that some employees knew about the issue as early as 2004.
The carmaker has linked the issue to 12 deaths. But a report by the Center for Auto Safety has put the number at 303 – a figure that GM has disputed.
The delay in recalling the vehicles has triggered two congressional enquiries against General Motors.
Mary Barra is scheduled to testify to both chambers of Congress next week on the issue and address why it did not recall vehicles earlier.
General Motors has promoted product development chief Mary Barra to the post of CEO.
Mary Barra replaces Daniel Akerson, and is the first woman to run a US carmaker.
Daniel Akerson, who is also currently chairman of GM, will leave both of his posts in mid-January. His wife has recently been diagnosed with advanced cancer.
Earlier this week the US government sold its remaining shares in GM, the world’s second biggest carmaker.
General Motors has promoted product development chief Mary Barra to the post of CEO
Overall, GM lost around $10 billion on its bailout of the carmaker in the aftermath of the financial crisis in 2008 and 2009.
The US Treasury spent $49.5 billion bailing out GM, and took a 61% stake in the company.
Mary Barra has been in charge of design and engineering, and before that was head of human resources at the company.
She joined GM as a student in 1980.
In a message to the company’s employees on Tuesday, Daniel Akerson said: “I will leave with great satisfaction in what we have accomplished, great optimism over what is ahead and great pride that we are restoring General Motors as America’s standard bearer in the global auto industry.”
Current CFO, Dan Ammann, was named GM president. He will also take responsibility for the Cadillac and Chevrolet brands.