Will General Motors Company Dare Play Its Get-Out-of-Jail-Free Card?

GM's bankruptcy agreement could let it off the hook for most of the recall consequences. Will GM dare to use it?

Apr 5, 2014 at 11:00AM

Barra Before Congress

GM CEO Mary Barra endured tough questioning before Congressional panels this week. Photo credit: General Motors.

The pressure is mounting on General Motors (NYSE:GM) and its still-new CEO, Mary Barra, to do something significant to compensate victims of the defective ignition switches that are implicated in 13 deaths.

The catch: There's a provision in GM's 2009 bankruptcy agreement that shields the current General Motors from liability for accidents that occurred before that date. In theory, GM could be shielded from most of the consequences of the defective switches -- but will GM dare play that card? The public-relations consequences could be severe.

In this video, Fool contributor John Rosevear takes a closer look at the immunity provision in GM's bankruptcy deal -- and at how Mary Barra is likely to try to navigate this increasingly messy situation.

A transcript of the video follows.

Everything you need to know about Obamacare
Obamacare seems complex, but it doesn't have to be. In only minutes, you can learn the critical facts you need to know in a special free report called "Everything You Need to Know About Obamacare." This free guide contains the key information and money-making advice that every American must know. Please click here to access your free copy.

John Rosevear: Hey, Fools, it's John Rosevear, senior auto analyst for fool.com. I want to quickly explain something that has come up kind of as a backdrop in this whole GM recall mess. One of the issues is that GM theoretically has legal immunity from liability for any accidents that occurred before July 10, 2009. That was part of GM's bankruptcy agreement; it was written into the deal that released the new General Motors from bankruptcy protection, and clearly the thinking was to give this new company, this overhauled company, a fresh start.

But now that's becoming an issue. On the one hand, GM, the new GM, today's GM, is theoretically entitled to try to hide behind that provision when they get sued by people who had accidents in the cars with the defective ignition switches. All of the affected cars were made before then, and most of the accidents that are part of this discussion happened before then; there have been a few that happened later. But you can imagine how that's going to go over if GM tries to hide behind this thing.

Some of the lawyers looking to sue GM are talking about allegations of bankruptcy fraud, and this actually came up during the hearings this past week. GM CEO Mary Barra had some tough grilling before a U.S. House of Representatives panel on Tuesday, and an even tougher time before a Senate panel on Wednesday. Some of the senators were asking about this -- did GM conceal this potential liability at the time of the company's bankruptcy? And, of course, this has the potential to bring us right back to the dispute over GM's $49.5 billion bailout, and the high-speed bankruptcy proceeding that was arranged for GM by the Obama adminstration, and just as GM thought it had finally put that whole discussion behind them, the whole can of worms could pop right back open again.

So this is one of many places where Mary Barra has a hard choice. The company could waive that liability limit, which could expose them to billions of dollars in damage awards, or they could try to stick with it, which risks doing immense damage to GM in other ways. I suspect that what Barra is going to try to do is to put together a fund to compensate victims of accidents before the date of the liability limit -- in other words, to try to take care of those people in a way that doesn't leave GM with completely unlimited exposure.

A week ago I would have said that was a good idea, but I don't know if it's going to fly now. Barra took a real beating this week in front of the Senate. She didn't have the answers that the senators were looking for, and GM's position is that their investigation is still ongoing and so it's too early to give answers. But it gives people an opportunity to say that they're stonewalling, and that's just bad. Tough stuff, but this is a big issue, and it will be very interesting to see how Barra handles it. Thanks for watching.

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers