General Motors (GM) to Pay $900M to Settle with the U.S. Department of Justice

Shares of The General Motors Company (GM) were up +0.15 or +0.48 percent to $31.35 per share in Thursday’s premarket trading after news late yesterday that the company would settle a lawsuit with the Department of Justice for $900 million. The lawsuit stemmed from the company’s handling of a defect in the company’s ignition switches which caused a number of deaths. General Motors stock closed at $31.20 per share, up +0.21 or +0.68 percent in Wednesday’s regular trading session.

Detroit, Michigan based General Motors Company is one of the largest car manufacturers in the world, producing and distributing vehicles in 37 countries.
The company markets vehicles under 10 major brands and led global vehicle sales for 77 consecutive years from 1931 to 2007. General Motors filed for Chapter 11 bankruptcy in 2009 and was subsequently bailed out by the U.S. government, making an initial public offering in 2010. The IPO was one of the largest to date and returned the company to profitability.

The deal struck by the Department of Justice with General Motors will have the automaker pay a fine of $900 million in a deferred prosecution agreement for a charge of wire fraud. The company originally was charged for concealing a deadly problem with its ignition switches which caused the deaths of at least 124 people and prompted the recall of 2.6 million of the carmaker’s smaller cars such as the Saturn Ion and the Chevy Cobalt in 2014.

The faulty ignition switches would slip from the run position to the accessory or off position, shutting off the car’s engine and disabling the power brake system, power steering and air bags. General Motors acknowledged that some of the company’s employees were aware of the problem for more than ten years; nevertheless, no cars were recalled until February of last year despite years of complaints by consumers.

In addition to the 124 deaths caused by the defect, the problem with the ignition was responsible for injuring 275 people according to attorneys overseeing a compensation fund with $625 million that General Motors has set aside to compensate victims. Families of people who died as direct consequence of the faulty ignitions will receive at least $1 million each, while the company continues facing a number of civil lawsuits related to the issue.

General Motors is still facing more than 200 civil lawsuits for the 2014 recall, but a federal judge has ruled that due to the company’s 2009 bankruptcy, no cases prior to the bankruptcy would be considered. In a separate action in May of 2014, General Motors paid $35 million fine for to the U.S. Department of Transportation for delaying their response to the ignition defect.

The fine is considerably smaller than the $1.2 billion levied against Toyota for a defect that caused their vehicles to unexpectedly accelerate. The Toyota settlement is the largest the U.S. government has ever levied against an automaker. Analysts expected General Motors to be fined $1.5 billion. Despite settling with the Department of Justice, the company must still face multiple civil suits, with the first one expected to be tried in early 2016.

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Published on Sep 17, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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