By Burton Speakman
Issues continue to pile up against General Motors Co. with the filing of a class-action lawsuit valued at as much as $10 billion.
The lawsuits and negative reports, however, don’t appear to be hurting sales of GM vehicles. Projections show GM sales up for July over July 2013.
Customer attitudes indicate that because of the recalls, GM can’t afford to have more problems, said Jesse Toprak, senior analyst for Cars.com.
“Customers expect the company to be extremely vigilant now and not repeat past mistakes,” he said.
Surveys of consumers do not show much impact now or in the future because of the recalls, Toprak said.
The Lordstown-built Chevrolet Cobalts were included in the GM recalls.
The class-action lawsuit started with a single plaintiff, Anna Andrews. It initially was filed in U.S. District Court in the Central District of California. Since then a second plaintiff, Ishmail Sesay, has been added, and the case was transferred to the U.S. District Court Southern District of New York.
Hagens Berman Sobol Shapiro, the law firm that filed the suit last month, estimated to Reuters the case could be worth more than $10 billion.
The lawsuit claims that because of deception, GM buyers lost between $500 and $2,900 in vehicle resale values. The case mentions the ignition switch and related issues, but also includes a number of recalls not related to the ignition switch.
GM has requested additional time to respond to the case.
A GM spokesman, Greg Martin, declined to comment to Reuters about the lawsuit. He said many customers and analysts recognized the strength of the GM brand and that the market recognition has resulted in increased sales, transaction prices and residual values.
The defective ignition switch could slip vehicles out of the run position, which would shut down the engine and stop the power steering and brakes from working. If the vehicle crashed, air bags wouldn’t work.
Lawyers representing victims estimate the problem resulted in 60 deaths.
The lawsuit could hurt GM in the long run with undecided purchasers, Toprak said. Loyal GM buyers will continue to purchase from the company, however, he said.
“The problem is if undecided consumers remove GM from consideration,” he said. “The company is currently seeing a boost because of consumers who have come to the lot for repairs, but that won’t last forever.”
The company now is being very conservative with additional recalls. GM does not want to be dealing with this issue in a year, Toprak said.
The recall effort has and will continue to have an impact on GM’s bottom line.
The company reported the recalls cost the company $1.2 billion in the second quarter of this year alone. The company also estimated it will spend $400 million for a victim-compensation fund designed for victims or families of victims in crashes where the ignition switch turned off the vehicle, leading to an accident.
The fund is being run by compensation expert Kenneth Feinbert, who oversaw the BP compensation efforts in the company’s Gulf of Mexico oil spill in 2010.
This lawsuit is separate from the victim-compensation fund. The terms of the fund require those who are granted compensation to waive their right to sue the company before receiving any money.
There is an issue with the suit. GM was shielded from legal claims by a judge’s order for events that occurred before the company’s bankruptcy and reorganization in 2009.
The company has thus far not agreed to waive that protection against any type of lawsuit. Lawyers, like those in this case, however, are attempting to overturn the shield by accusing GM of committing fraud by deceiving the judge in the bankruptcy hearing.