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Is GM Undermining a $15M Settlement Over Faulty Ignition Switches

Consumers will remember that in 2014, General Motors (“GM”) recalled millions of small vehicles that were found to have defective, and faulty ignition switches. Design flaws in these cars allowed the ignition to slip, shutting the car off and disabling the airbag system; these flaws caused the deaths of 124 people and several hundred more injuries. Last week, an agreement was reached between GM’s trust and the accident victims’ lawyers to pay $15 million to settle class-action cases against the company. However, a last-minute conflict concerning the corporate structure of GM and the timing of the accidents is threatening to derail the class action and prevent the victims and their families from receiving their settlements.

To understand what’s going on here, we need to turn the clock back a few years to 2009, when GM was on the brink of collapse. After receiving a controversial $50 billion bailout from the government, a “new” GM exited the bankruptcy process as a relatively healthy company. The “old” GM corporation, meanwhile, stuck around in the form of Motors Liquidation Company, tasked with selling off leftover assets to pay back creditors. This reorganization has caused problems with consumers’ claims; under the original bankruptcy proceedings, the deadlines to file claims against “old” GM was in 2011, but the ignition switch defect was not discovered until 2014, and many of these cars had been sold pre-reorganization.

The unitholders of the trust which was to compensate victims were prepared to accept the proposed $15M agreement in a conference today, but in a surprise turn of events, GM has decided that it will not accept the terms of the deal (specifically as they concern the claims filed on cars sold pre-bankruptcy) and that it would make its own deal with the trust. Judge Martin Glenn, presiding over the case in the U.S. District Court for the Southern District of New York, ordered the parties to discuss the deal’s collapse and to return to court in September to see if progress can be made.

We will continue to observe this issue as it develops, and we hope to see the victims and their families be justly remunerated.

Any questions about this case? Drop us a line at ConsiderTheConsumer@gmail.com.

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