GM Recall Woes Mount With Shareholder Lawsuit

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General Motors


In the same week a rival felt the $1.2 billion sting of a recall scandal, General Motors (NYSE:GM) saw the pressure and consequences intensify as its ignition switch recall has become the automaker’s biggest crisis since going bankrupt. The Detroit News reports a GM shareholder has filed a class-action lawsuit alleging the automaker defrauded investors by not disclosing the ignition switch problem in vehicles that has prompted a federal investigation along with a recall of 1.6 million automobiles.

Tied to the lawsuit are the stock market fluctuations that pushed GM down 10 percent between March 10 and March 14, accounting for billions in overall shareholder value. (The stock gained back 3 percent the week following the dip.) Nonetheless, GM’s slow but steady climb in stock value was effectively ended by the investigation that has left the automaker reeling as Chief Executive Mary Barra prepares to testify before the U.S. House of Representatives on April 1.

According to The Detroit News, the shareholder suing GM is seeking reparations for the damages to investments, which has some precedent in the case of Toyota (NYSE:TM) and its massive losses in market value that resulted from the unintended acceleration recall. Following tens of billions in stock losses, the $25 million payout to shareholders by the Japanese automaker was in reality a drop in the bucket.

However, the shareholder burden for GM’s recall and the fines the company will likely face for ignoring defects in vehicles should grow exponentially. On March 19, U.S. Justice Department officials publicly lambasted Toyota Motor Corp. officials for their “shameful” actions during the unintended acceleration recall while announcing a record $1.2 billion fine the automaker must pay. Most industry experts expect GM to bear the brunt as bad or worse.

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