General Motors Bankruptcy Under Investigation After Ignition Defect

General Motors

Authorities are looking into General Motors’ file for bankruptcy after investigations revealed a potential ignition defect in their products. The defect resulted in almost 1.6 million vehicles to be called back last month. Experts looking into the case suspect that General Motors might have been aware of the defect when they filed for bankruptcy.

General Motors filed for bankruptcy back in 2009. Under the 2009 restructuring deal that helped General Motors stabilize its financial position, the company was divided into two separate, old and new, entities. All bad assets such as closed assembly lines and liabilities before the bankruptcy became the liabilities of the old company. As such the old company solely became responsible for all the lawsuits that the company faced before filing for bankruptcy.

The source of suspicion is that the company was aware of the ignition defect and did not disclose it to the government or the public. Doing so the company committed bankruptcy fraud as it helped them evade any potential lawsuits that could have had resulted from the faulty ignition in their vehicles.

The defect primarily caused the engine to shut down if a heavy key ring was attached to the ignition. Because of this defect the car would lock down and disable the airbags. This defect was also the cause of as many as 31 crashes and 12 deaths. One particular incident resulted in the death of three teenagers.

18-year-old Natasha Weigel, 15-year-old Amy Lynn Rademaker and 17-year-old Megan Ungar-Kerns were returning home from a trip to Walmart when the engine lost all power and the steering wheel locked up. The car, a 2005 Chevrolet Cobalt, slammed into a telephone pole and two trees. Weigel and Rademaker lost their lives whereas Kerns was left brain-damaged. Investigators noted that the ignition switch was in the accessory position instead of the run position.

The company was shielded from any future liabilities that resulted from the pre-bankruptcy crashes including the crash victims. Investigators are looking into the possibility of the company being aware of the ignition defect and hence filing for bankruptcy.

General Motors has cooperated in the investigation and provided all the possible documents needed to aid federal investigators in New York. The company however is already facing challenges to the bankruptcy agreement. Shareholders of the company filed a lawsuit arguing that General Motors delayed in disclosing any information related to the ignition defect. This in turn was seen as an act of defrauding the stakeholders of the company.

The Transportation Department also announced that they would conduct an internal audit of the performance of the National Highway Traffic Safety Administration (N.H.T.S.A). They would observe the highway agency’s failure to spot a trend in the company’s defect that has claimed over 12 lives.

Secretary of transportation Anthony R. Foxx in a letter said that they did not find enough evidence to confidently suggest N.H.T.S.A. failed to perform their responsibilities. The internal review was called to simply err on the side of caution.

General Motors might not be liable for accidents or lawsuits that occurred before the bankruptcy but this investigation might change all that. If the case of active concealment is proved, plaintiffs would be allowed to sue the company over pre-bankruptcy actions. Based on what the investigation of their bankruptcy reveals all the accidents that resulted from the ignition defect might end up becoming a liability of General Motors.

By Hammad Ali.

Source:
Reuters
JOURNALSENTINEL
NYTIMES

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