Will GM’s $2 Billion Satisfy the Growing Chorus of Lawsuits?
As General Motors and its executives were being publicly pilloried about the ignition-switch problems affecting millions of cars, which resulted in 54 accidents and 13 deaths known to date, the company began to prepare for settlement payouts by hiring Kenneth Feinberg.
An attorney who handled compensation issues surrounding the 9/11 terrorist attacks, the Boston Marathon bombing, and the BP oil spill, Feinberg was brought on to advise the automaker on its response to the faulty ignition switch debacle and the massive recalls that resulted from it.
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Feinberg expects to begin accepting claims on August 1 from 44 recalls involving a total of 20 million vehicles. Most recently, GM recalled 500,000 Camaro sports cars in mid-June and 3.6 million vehicles from model years 2000 to 2014 just three days later.
GM has so far announced or taken charges of $2 billion to cover the costs of those recalls, according to the Associated Press, but it’s still unclear how much the settlements will run the auto giant in total and what impact the problems may yet have on the company’s sales. GM's sales lagged behind the industry's increase in March and April, but its strong May sales – which were up 13 percent, its best month since before the U.S. recession – haven't carried over to June, in which analysts are predicting its sales will underperform those of competitors.
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GM CEO Mary Barra told the House Energy and Commerce Subcommittees she’s aiming to correct a culture that has displayed a “pattern of incompetence and neglect.”
It won’t be enough to halt her company from forking over big dollars as a response to the damage its ignition switch problem caused.
GM is certainly not the first company to pay a major settlement after wrongdoing — intentional or not. Here’s a list of some of the largest settlements in the pharmaceutical, auto, consumer products and banking industries:
1. Tobacco industry: The country’s five largest tobacco makers (Philip Morris, R.J. Reynolds, Brown & Williamson, Lorillard and Liggett & Meyers), combined for a $246 billion agreement with the country’s 50 state attorneys general, compensation for tax dollars spent on tobacco-caused diseases.
2. Foreclosure process abuses: In 2013, five banks (Wells Fargo & Co., J.P. Morgan Chase & Co., Citigroup Inc., Bank of America Corp., and Ally Financial Inc.) agreed to pay $25 billion in penalties over alleged foreclosure process abuses.
Two other major finance settlements took place in the same year: JPMorgan Chase & Co. reached a $13 billion deal with the Justice Department to settle investigations about its residential mortgage-backed securities business. Bank of America, Wells Fargo and 11 other banks reached a $9.3 billion settlement with the Office of the Comptroller of the Currency and Federal Reserve over alleged foreclosure abuses.
3. BP: After the worst oil spill in North American history, the oil giant established a $20 billion trust in 2010 to deal with claims arising from its Deepwater Horizons disaster. After the Exxon Valdez oil spill that sent nearly 11 million gallons of oil into Alaska's Prince William Sound, Exxon settled for $900 million dollars. There was the possibility of $100 million more in that agreement, but it has yet to be paid.
4. GlaxoSmithKline: After pleading guilty to civil and criminal charges stemming from its unlawful promotion of certain prescription drugs, failure to report certain safety data and false price reporting practices, the health care giant was forced to pay $3 billion, making it the largest healthcare settlement.
5. Pfizer: The pharma giant paid $2.3 billion to settle civil and criminal allegations that it had illegally marketed the painkiller Bextra, which was later withdrawn.
6. Toyota: A federal judge approved a $1.6 billion settlement in a July 2013 class-action lawsuit against Toyota for vehicle owners that suffered losses after reports of unintended acceleration.
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