General Motors Faces $10B Lawsuit - Analyst Blog

According to a new lawsuit filed by vehicle owner, General Motors Co. GM should pay more than $10 billion in order to compensate 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 late recall of vehicles with faulty ignition switches, which has damaged General Motors' brand image.

The lawsuit blames the company for concealing the defects which it was aware of since 2001. General Motors has issued a total of 44 recalls this year, which covers 20 million vehicles globally. Of these, the automaker has recalled 17.7 million vehicles in the U.S. itself.

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.

However, General Motors did not comment the lawsuit. The automaker considers that it has a good brand value which has led to year over year increase in sales with a better transaction price and residual values. Revenues in the first quarter of 2014 grew 1.4% year over year to $37.4 billion.

This lawsuit involves vehicles which were sold during Jul 10, 2009 to Apr 1, 2014, which were recalled due to faulty ignition switches. It does not include the recalled vehicles which were sold earlier.

On Jun 18, General Motors' CEO Mary Barra met the U.S. Congress once more to answer questions about the delayed recall of 2.6 million vehicles with defective ignition switches. Attorney Anton Valukas, who was hired by General Motors to investigate the matter, was the only other witness before the House Oversight and Investigations Subcommittee. He was also questioned by the congress on the issue.

The Congress holds that the removal of only 15 employees who failed to identify the defect and acted inappropriately in relation to the recall, among a total of 200,000 employees, hardly makes any difference. In addition, the recently formed safety committee is not as effective as intended as majority of the members are selected from the company itself.

General Motors' CEO informed the Congress about the initiatives the company is taking to deal with the recalls. Ignition parts of 400,000 Cobalt have been shipped, and it is expected that all parts will be available by October. In addition, General Motors has appointed 100 customer engagement representatives who will see to it that the recalled vehicles are brought to the service center and repaired faster.

General Motors currently holds a Zacks Rank #3 (Hold). Fox Factory Holding Corp FOXF, Gentherm Incorporated THRM and Tower International, Inc. TOWR are some better-ranked automobile stocks. All these stocks carry a Zacks Rank #1 (Strong Buy).
 

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