GM Requests Lawsuit Protection - Analyst Blog
April 16 2014 - 6:00PM
Zacks
General Motors Co. (GM) revealed that it will
appeal to a New York federal bankruptcy judge for protection
against legal claims related to the late recall of vehicles with
defective ignition switches. The company is currently facing more
than 36 ignition switch lawsuits.
General Motors said that claims related to actions by the old GM
before going into bankruptcy should legally belong to the old
company which now operates under the name of Motors Liquidation Co.
The new GM formed post-bankruptcy enjoys legal protection against
the lawsuits filed before the bankruptcy. During bankruptcy in
2009, General Motors faced 2,500 lawsuits of different types.
To its defense against the faulty switch recall, the company stated
that though the recall of 2.6 million vehicles with faulty ignition
switches was initiated in Feb 2014, the problem traced back to
2001. However, the company is focused on resolving the issue and is
considering compensation for the families of the crash victims.
Recently, CEO of General Motors, Mary Barra announced that the
company has hired Kenneth Feinberg to find out ways to compensate
the victims of the accidents due to the ignition switch fault.
Kenneth Feinberg is known for handling the compensation funds for
the victims of 9/11, the Boston Marathon bombing and the
BP (BP) oil spill. Allocation of separate funds
for victims is not yet confirmed.
In Feb 2014, General Motors announced the recall of 2.6 million
older-model small cars associated with 31 crashes and 13 front-seat
fatalities due to faulty ignition switches. The recalled vehicles
mainly include Chevrolet Cobalts and Saturn Ions.
Considerable costs associated with the repair are a potential
reason behind the delayed recall. General Motors identified the
switch problem in 2001. As a matter of fact, the engineers provided
different options to rectify the defect but none of them were
accepted due to cost concerns.
According to General Motors, a heavy key ring or uneven roads can
cause the ignition switch to shift away from the run position, thus
turning off the engine and electrical power. In such a situation,
the front air bags will not inflate in case of a crash.
General Motors currently holds a Zacks Rank #5 (Strong Sell).
Better-ranked automobile stocks worth considering are Tesla
Motors, Inc. (TSLA), PACCAR Inc. (PCAR)
and Fox Factory Holding Corp (FOXF). All these
stocks carry a Zacks Rank #2 (Buy).
BP PLC (BP): Free Stock Analysis Report
FOX FACTORY HLD (FOXF): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis Report
PACCAR INC (PCAR): Free Stock Analysis Report
TESLA MOTORS (TSLA): Free Stock Analysis Report
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