Shares of General Motors Company GM dropped 3% to $34.55 on Dec 11 after the automaker approved 399 death and injury claims, and awarded $594.5 million in compensation to the victims of accidents resulting from faulty ignition switches.
With the addition of this compensation, the costs incurred by General Motors for the defective ignition switches have now exceeded $2 billion. This also includes a fine of $900 million imposed in third-quarter 2015 for the Deferred Prosecution Agreement.
Kenneth Feinberg, the lawyer hired to assess the claims, said that about 91% of the proposed awards were accepted by the victims. General Motors stated that in 74% of the death claims and 61% of other eligible claims, the drivers were not careful. They were either – not wearing a seat belt, driving at high speed, driving in an inebriated state, or falling asleep at the wheel.
General Motors has been facing the heat for delaying the recall of 2.6 million vehicles with defective ignition switches, which can lead to shutting down of the engine and prevent deployment of front air bags in the event of a crash. The company issued a recall in Feb 2014 although the problem was identified back in 2001. Yielding to both legal and political pressure, General Motors launched a program in Jun 2014 to compensate the victims and families affected by crashes due to the ignition switch defect.
However, General Motors is not responsible if the mishap occurred before it emerged from bankruptcy restructuring in Jul 2009, or if the victims were partially responsible. Due to this, the automaker did not have to compensate for 128 of the 399 approved claims as these happened before its Jun 2009 bankruptcy. After accepting the settlement, victims were required to waive the right to pursue lawsuits.
Detroit, MI-based General Motors is a prominent player in the global automotive industry. Currently the company carries a Zacks Rank #2 (Buy).
Other favorably ranked automobile stocks include American Axle & Manufacturing Holdings Inc. AXL, Fox Factory Holding Corp FOXF and O'Reilly Automotive Inc. ORLY. All these stocks carry a Zacks Rank #2.
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