General Motors anticipates it will spend at least $400 million to recompense victims of a defective ignition switch so far linked to the death of at least 13 people, though it cautioned that the figure could run as high as $600 million, depending upon how many people qualify for the program.
Those numbers, while significant, come in substantially below widespread reports that had placed the potential cost of the program at as much as $1 billion or more. GM announced details earlier this month of the victims’ compensation program that will be handled by compensation specialist Kenneth Feinberg.
“There’s no cap on this program and at the end of the day Ken Feinberg will determine how much this program costs,” GM Chief Financial Officer Chuck Stevens told reporters on Thursday morning following the release of the maker’s second-quarter earnings.
The maker’s net income fell to $190 million, off nearly 85% compared to year-ago levels, largely as a result of $1.5 billion in charges linked to both the victims’ fund and for the handling of other safety-related problems. During the first half of 2014, General Motors announced 54 separate recalls covering 25.7 million vehicles.
The maker has slowed the pace of its service actions since the end of June, but yesterday announced another six recalls covering about 717,000 vehicles.
The ignition switch recall, first announced in February, has been the maker’s biggest headache, giving GM not only a black eye in the media but threatening to see some of its executives caught up in an ongoing criminal investigation by the U.S. Justice Department. Many observers expect that even if GM escapes prosecution it will face a severe penalty, perhaps modeled after the $1.2 billion fine levied against Toyota Motor Co. earlier this year for its own recall problems.
GM is also dealing with probes by both houses of Congress, as well as the National Highway Traffic Safety Administration. That has led to increased scrutiny that industry observers say, in turn, is encouraging manufacturers to err on the side of recalls whenever potential problems crop up. Overall, the industry total is approaching million vehicles so far this year, far exceeding the previous recall record of 34.1 million set in 2004.
(No cap to GM victims’ compensation fund. For details, Click Here.)
GM CFO Stevens stressed that the company’s estimate for the cost of the victims’ compensation program was based on its own estimates, and not a figure provided by fund manager Kenneth Feinberg – who previously oversaw similar programs set up for 9/11 victims and those hurt in the Boston Marathon bombing.
(Click Here for details about how many may be eligible for the GM fund.)
Feinberg has said his goal is to reach out to any and all persons who might have been involved in crashes caused by the defective GM ignition switch. While the automaker has put the number of fatalities at 13, that only counts those who were behind the wheel when a crash occurred. The number is expected to rise, perhaps to 70 or more, according to a Reuters study, when those seated elsewhere in the vehicle are included. Feinberg is also planning to compensate those injured, even if they were in another vehicle hit by a GM car that lost control due to the defective switch.
(To see more about Mary Barra’s latest appearance before a Senate subcommittee, Click Here.)
A total of 2.6 million vehicles were covered by the February recall, the problem involving a switch that could inadvertently jounce from the run to the Off or Accessory position because of an improper design. If that happens, a vehicle may stall, lose its power steering and brakes, and have its airbags shut off. GM documents reveal the maker was aware of the problem for at least a decade before acting.