A $10 Billion Loophole: Will General Motors Really Ignore the Same Taxpayers That Saved It From Ruin

General Motors headquarters in Detroit. Source: General Motors

General Motors has just been slapped with a staggering lawsuit that could cost the automaker more than $10 billion. The lawsuit claims that General Motors is liable for a loss of resale value on as many as 15 million vehicles, some of which aren’t even involved in the ignition switch recall debacle, due to damaged brand image. With all the negative publicity about General Motors and its ever-growing pile of recalled vehicles — 17.7 million vehicles in the U.S. and counting — how will the company respond to this suit? Will it fork over the cash to its customers? 

Don’t count on it. It appears that America’s largest automaker could use a loophole that formed when it emerged from its bankruptcy in 2009.

Here’s where it gets tricky
Make no mistake, this massive recall saga has ballooned into a very complex situation. It has been made especially tricky because the bankruptcy General Motors emerged from in late 2009 enables “New” GM to avoid responsibility for accidents that originated during the “Old” GM era, in its pre-bankruptcy days. 

Apparently, when you’re America’s largest automaker, this defense works perfectly. That’s the kicker in this tragic case — because many of these ignition switch accidents took place almost a decade ago, “New” GM can, in theory, avoid responsibility. 

Toyota, while avoiding bankruptcy through its entire recall saga in 2009 and 2010, unfortunately did not have that same defense available and ended up settling a very similar lost-value lawsuit under terms valued between $1 billion and $1.4 billion. 

To be very clear, General Motors has said that it will absolutely take “Old” GM’s responsibility, and rightfully so, for those people directly affected by the ignition switch defects through crashes, injuries, or tragic deaths. Currently, it appears “New” GM’s assumption of “Old” GM’s responsibility will end with the 300 individuals identified as having been directly affected.

In reality, this lost-value lawsuit is but one piece of the entire situation surrounding General Motors. Here are a few more things to consider, and a mystifying lack of a response from the taxpayers that were left on the hook paying to save the once troubled Detroit automaker.

Does anybody care?
General Motors has recalled over 17.7 million vehicles in the U.S. this year. That amount is more than the entire automotive industry is expected to sell in the U.S. this year, an estimated 16.1 million vehicles. Furthermore, General Motors is currently on pace this year to top the entire auto industry’s record of 30.8 million vehicles recalled, set in 2004, single-handedly.

After the American taxpayer helped fuel General Motors’ unique bankruptcy and bailout process roughly five years ago, our thank-you note was an $11.2 billion tab. After all of that, is General Motors really going to try to shrug off a $10 billion lawsuit that alleges that as many as 15 million American car buyers lost value on their vehicles?

Surely the American consumer would respond to either the massive recall debacle or this new lawsuit?

If Americans responded, it certainly wasn’t in terms of purchasing competing vehicles, rather than General Motors’ — the company’s sales are up 13% through the first five months of the year, and May was the company’s best monthly sales performance since August 2008.

“It’s remarkable how disconnected the buying public is from this story,” said Jack Nerad, executive market analyst at Kelley Blue Book, according to Bloomberg. “It doesn’t seem to have affected sales at all.”

Bottom line
Despite ballooning recalls, massive incompetence, and tragic deaths linked to ignition switch defects, it’s possible that General Motors could emerge from this entire recall debacle relatively unscathed. We know that General Motors will take a $2 billion charge on its financial reports through the first two quarters, and that it plans to set up a massive fund to compensate victims’ claims. But is that enough?

If General Motors emerges, after all is said and done, paying roughly the same amount Toyota did for its massive recall a few years ago, roughly $3 billion, wouldn’t that seem like a slap on the wrist? Wouldn’t that be insignificant compared to the tab GM left taxpayers on the hook for, to the tune of $11.2 billion? Before you answer, consider that General Motors ended the first quarter with $27 billion in automotive cash and marketable securities. Maybe it’s time consumers and investors spoke up.

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The article A $10 Billion Loophole: Will General Motors Really Ignore the Same Taxpayers That Saved It From Ruin? originally appeared on Fool.com.

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