The Death Toll From General Motors' Ignition-Switch Ordeal Could Be 23 Times Higher Than Initially Reported

GM CEO Mary Barra detailing the recalls in front of shareholders and the media. Source: General Motors

It seems as if each passing day brings a new vehicle recall, whether it's General Motors (GM 1.20%) adding onto its outrageously high total of 17.7 million vehicles recalled in the U.S. (more than 20 million vehicles in North America), or other automakers announcing their own recalls to take advantage of the press focusing on General Motors' debacle. That focus is not likely to be dimmed any time soon -- a new study suggests that the death toll from GM's ignition-switch recall could be more than 23 times higher than initially reported.

New analysis
Kenneth Feinberg, a compensation expert, has previously set up massive compensation funds for incidents, such as the Sept. 11 terrorist attacks, and is administering a victims' fund for General Motors. Details regarding the compensation fund will be outlined Monday at 10 a.m. in Washington. 

Originally, General Motors said it knows of at least 13 people who died in crashes related to its ignition-switch recall, when air bags failed to deploy because the ignition switch had flipped out of the run position and cut power to the vehicle. Through May of 2010, according to the NHTSA, Toyota reported 89 tragic deaths and 57 injuries for its "unintended acceleration" issues that culminated in a massive recall during 2010-2011. The initial estimate for GM was also less than number affected by Firestone's massive recall of defective tires, which is estimated to have tragically killed as many as 250 drivers.  

However, GM's initial death count pales in comparison to a figure reported by The Wall Street Journal. After the newspaper reviewed data from the investigation, it found that 309 drivers and passengers were killed in accidents when air bags didn't deploy in one of the GM vehicles that are now subject to the ignition-switch recalls. The Wall Street Journal also noted that an additional 228 people were injured, though the analysis remains unofficial.

What's next?
General Motors plans to accept and process victims' claims beginning Aug. 1, and Kenneth Feinberg is authorized to handle everything that governs the fund, including setting compensation levels and initiating payouts.

GM CEO Mary Barra in front of a Senate Subcommittee earlier this year. Source: General Motors

While the details regarding compensation levels have yet to be announced, a look at Feinberg's Sept. 11 victims' fund could give us a general idea about compensation. Feinberg issued compensation payments ranging from $500,000 to $7.1 million to cover death claims, and an average of $2 million to cover injury claims, according to the Journal.

General Motors also quietly settled one case before the recall became widely publicized for $5 million, according to an investigation by Anton Valukas and reported by Detroit Free Press. 

To better grasp what General Motors could end up paying, let's assume a $4 million payout to compensate families tragically affected by each death, and $2 million for each injury. Using The Wall Street Journal's estimate of 309 deaths and 228 injuries, in this hypothetical scenario, that would have General Motors paying nearly $1.7 billion into the fund to appropriately compensate families involved. Barclays recently estimated that General Motors would end up paying more, roughly $2.5 billion in settlements and federal fines, which could give credence to WSJ's higher death toll analysis. 

Another twist to General Motors' compensation fund is that it's technically voluntary. Meaning that if families opt to take part and receive funds allocated by Feinberg, they give up their right to sue General Motors. Families also have the right to refuse any compensation payments, and opt to sue General Motors instead.

Ultimate cost
General Motors' total cost for this tragic and embarrassing recall debacle will be impossible to determine. Many intangibles such as brand image and sales could be negatively affected and difficult to measure.

GM has booked charges of $1.3 billion for costs associated with repairing the recalled vehicles in the first quarter, and plans to book another $700 million charge in the second quarter. GM will also pay a $35 million fine from the National Highway Traffic Safety Administration which, in this case, hardly moves the needle.

There is also an additional lawsuit claiming that General Motors is obligated to reimburse up to 15 million drivers of its vehicles because the ignition-switch recall, among other recalls this year, has hurt the resale values of GM vehicles. The lawsuit could potentially cost General Motors up to $10 billion, though you can expect the automaker to fight that in court, and it may not pay a dime in the end.

It's very likely that, when the dust settles, General Motors could end up paying even more than Barclay's $2.5 billion estimate for repairs, compensation, and fines, which would likely eat more than half of the profit that the automaker has generated so this year.