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Pressure Mounting on GM to Establish Victims Fund

Analyst says maker may pay up to $3 billion in settlements.

by on Mar.26, 2014

General Motors could spend $3 billion to settle lawsuits and fines related to its faulty ignition switch recall.

The idea that General Motors might establish a fund to handle settlement payouts related to its ignition switch recall took on new life today when an auto analyst suggested the maker could set up a fund with as much as $3 billion.

Barclays Analyst Brian Johnson said in a research note today that the automaker may establish a settlement fund with as much as $1.5 billion in it to deal with the lawsuits filed against it related to the recall of 1.6 million cars with faulty ignition switches.

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The problem has been blamed for 31 accidents and 12 deaths, although critics suggest that the numbers could be much higher due to lax reporting standards for fatal crashes.

Additionally, he noted that the company may have to pay more than $1 billion in fines to the U.S. government due to problem. The number is based on the $1.2 billion fine that Toyota agreed to due to its unintended acceleration issue.

He further said the automaker could use its bankruptcy estate, Motors Liquidation Co., to establish the fund and maintain the company’s protection from its pre-bankruptcy liabilities.

Johnson speculated that an announcement will come before GM’s CEO, Mary Barra, testifies before the Senate’s Commerce, Science and Transportation Committee on April 1.

The report comes as the call for a fund has been repeated by politicians and safety advocates in recent days. Sen. Richard Blumenthal, D-Conn. sent an open letter to U.S. Attorney General Eric Holder asking him to compel GM to set up a fund.

(Nissan recalls 1 million vehicles for airbag issue. For more, Click Here.)

“I urge that DOJ require that GM establish a fund to fully compensate consumers who suffered injury, death, or damage as a result of these lethally defective vehicles,” he wrote in the open letter. “This civil remedy could be done as an interim step, even before completing your criminal investigation and prosecution.”

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He went further by asking Holder to intervene in “pending civil actions to oppose any action by GM to deny responsibility for consumer damages on grounds that those damages may have resulted from deceptive and fraudulent concealment and other misconduct by GM.”

(To see more about the calls for changing NHTSA reporting due to GM, Click Here.)

The number of $1 billion may have set by Clarence Ditlow, executive director for the Center for Auto Safety, who floated the number last week. He wants to see the fund set up as a trust that could be used to handle a multiple recalls.

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