Arizona's attorney general has filed a lawsuit against General Motors Company (GM) for the delayed recall of millions of vehicles and trucks with faulty ignition switches. As a result, the automaker may have to pay a $10,000 fine for each of the defective vehicles sold in the state, amounting to a total fine of about $3 billon. The attorney general has sued the automaker under the state's consumer fraud law.
He filed the lawsuit in the Maricopa County Superior Court in Phoenix. In the lawsuit, the attorney also claims that General Motors needs to surrender the profits it has generated from selling these vehicles.
General Motors has been recalling vehicles in large numbers. The automaker has announced 77 recalls, covering about 30 million vehicles in North America so far this year. Among the recalled vehicles, millions were due to faulty ignition switches. The automaker had recalled the vehicles in Feb 2014. However, the company had identified the problem in 2001.
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. This defect has led to 33 deaths and hundreds of injuries.
General Motors puts forward that the lawsuit is based on vehicles which were produced before the 2009 bankruptcy. As a result, the automaker requested the Manhattan judge to decide whether the company has to bear the charges related to the old General Motors.
General Motors has hired compensation expert Kenneth Feinberg to assess death claims and deploy compensation funds. The company expects to pay $400 million to $600 million for the claims.
In Jun 2014, due to a lawsuit filed by a vehicle owner, General Motors faced a claim of more than $10 billion as compensation for millions of its car and truck owners for the loss of resale value of their vehicles. Per the lawsuit, the resale value of the company’s automobiles has declined due to the late recall of vehicles with faulty ignition switches causing damage to General Motors’ brand image.
The resale value of the vehicles, which were recalled late has been estimated to be reduced by $500 to $2,600. General Motors needs to compensate 15 million car and truck owners who suffered such losses. This lawsuit involves vehicles sold during Jul 10, 2009 to Apr 1, 2014 that were recalled due to faulty ignition switches.
General Motors currently holds a Zacks Rank #4 (Sell).
Better-ranked automobile stocks worth considering include Gentex Corp. (GNTX), STRATTEC Security Corp. (STRT) and Meritor, Inc. (MTOR). Both Gentex and STRATTEC Security sport a Zacks Rank #1 (Strong Buy), while Meritor carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment