General Motors will use its cash on hand instead of insurance when it pays for claims stemming from its faulty ignition switch recall crisis, David Roman, GM's director of financial communications, told Business Insurance. GM's open-ended compensation fund -- GM Ignition Compensation Claims Resolution Facility -- was established as claims-paying vehicle for those killed or injured in accidents caused by faulty ignition switches.
The depth of the compensation fund will be solely determined by attorney Kenneth Feinberg, who unveiled it on June 30. Roman says the fund has no cap, adding that Feinberg will have the “final determination on numbers.”
Under the fund, family members of individuals killed in accidents caused by faulty switches are eligible for at least $1 million, with other factors helping increase the amount. Individuals injured in accidents caused by the switches are likewise eligible for compensation.
So far, at least 13 deaths have been linked to the faulty ignition switch, with GM calling back 2.6 million older-model cars to address the issue. Nir Kossovsky, chief executive of broker and adviser Steel City Re, quipped that GM’s reputation at this point is at risk, noting the carmaker made one of the best strategic moves for reputation restoration.
He remarked that while the move will be expensive, “it beats the alternative.” While the GM Ignition Compensation Claims Resolution Facility could be very expensive for the carmaker, other crisis management experts agree that the company has taken the right direction to address the crisis.
Larry Walsh, vice chairman of Hawthorn Group LC, remarked that GM’s move is the right thing to do even from “a cost/benefit standpoint.” He noted that years of litigation could be more harmful to GM and could be costlier. [source: automotive news - sub. required]