Treasury Officials About GM's Deadly Cars: We Knew Nothing

Roses are red

Violets are blue

Treasury says about those deadly GM switches

It had not a clue.

Ok. Sorry. I’m not quitting my day job to write poetry any time soon. But one of the dirty little secrets of the GeneralCobalt CrashThe Cooper Firm Motors bailout that came to light in the wake of its ongoing recall scandal was the liability shield that the company received from Treasury. The shield, as I wrote in a USA Today piece last week, theoretically means that the new and allegedly more responsible GM is legally off-the-hook for compensating the victims of its 2.6 million Cobalts and other recalled vehicles whose faulty ignition switch is linked to 13 deaths and 31 crashes.

A liability shield is not unusual in bankruptcy. But what is unusual is that GM was not required to create a special trust fund for prospective victims. Instead, they’ll have to fight other unsecured creditors for the pennies recovered from the sale of closed GM plants being held in a shell corporation.

Even more unusual is that GM got the shield when NHTSA (the National Highway Transportation Safety Agency) was already investigating the link between the faulty ignition and the crashes. So the question was what did Treasury officials who were negotiating the bailout know? Were they knowingly screwing over the victims of the Cobalt crashes or were they ignorant?

They are pleading ignorance, as per a Bloomberg story yesterday:

The task force President Barack Obama set up to manage General Motors Co. (GM)’s bailout and bankruptcy in 2009 wasn’t aware of the faulty ignition switches linked to 13 deaths in small cars, said people familiar with the matter.

Had it come up, the task force would have considered setting aside more money for the GM estate left behind after the Detroit-based automaker filed for bankruptcy in June 2009, said the people, who asked not to be named because their meetings were confidential. At the time, GM’s board and the task force based their projections for product-liability claims on a report that the GM estate would face about $414 million for pre-bankruptcy crashes, according to court papers.

While members of the task force met frequently in early 2009 with GM executives to discuss product-liability claims and determine how they should be handled in bankruptcy, the ignition switches or safety problems with the Chevrolet Cobalt weren’t brought up, said the people.

But of course!

Unless GM can prove that Treasury is lying, it will have a hard time hanging on to its shield in court. But the word on the street is that regardless of what the courts rule, bad publicity will force GM to voluntarily forego its shield, as I note in my morning column in the Washington Examiner.

In other words, market forces are more effective regulators than government officials. Can we fire some NHTSA bureaucrats now please?

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  • Gilbert Martin||

    To got with the heading, the picture for this article should have been Sgt Schultz from Hogan's Heroes.

  • sarcasmic||

    Ok. Sorry. I’m not quitting my day job to write poetry any time soon.

    Or alt-text for that matter.

  • Almanian!||

    Oh, SNAP.

  • kinnath||

    2.6 million vehicles going back about 10 years. Let's assume that's about 50,000 miles driven per car on average (more for older cars, less for newer cars). So around 130 billion vehicle miles driven. And these vehicles had an equipment defect that produced 31 crashes in 130 billion miles driven.

    Why are we wasting any time talking about this?

  • Almanian!||

    I kinda hate to pile on, but the issue appears to be driven by the maroons who hang everything in the purse (it's a chick thing) on their keychain. The weight of which then pulls the key to "OFF", resulting in the issue.

    I have my car key and a house key on my keychains. Nothing else. Never had a problem.

    Just sayin'...

  • kinnath||

    Users have a bad habit of doing shit the design engineers never thought about. At some point the design engineers have to take stupid users into account.

  • From the Tundra||

    Yikes. But still, you would be able to steer, right? The vehicle is already in gear so the column wouldn't lock, would it? Aren't the parking brakes still mechanical?

    I guess I can see where people not familiar with mechanically questionable vehicles might have some trouble with the quick thinking necessary to react correctly when something goes amiss.

    Still, how much of this is true design flaw and how much operator error...

  • kinnath||

    From the little I have read (I've been avoiding the topic), turning off the engine kills the electric power assist to the steering wheel (making it hard to steer) and the electronic sensor for the airbag (so it doesn't inflate in an accident). So turning off the engine does have negative affects on the operation of the vehicle.

  • gimmeasammich||

    From driving for a week or so after the belt to my power steering broke in college, I can tell you that it is only hard to steer when you are going less than 10-15 MPH. Faster than that and it's almost not noticeable. It just feels heavy when going around corners, but still one-handable.

  • kinnath||

    My first car was a 69 Camaro with standard steering. I taught my pregnant wife how to drive a stick in that car.

    Of course loosing power assist without warning at the wrong moment could cause anyone a problem. But we're talking about a corner case with a one in ten billion probability.

  • From the Tundra||

    I lost the brakes on my 65 LeMans coming down a hill fast toward a really busy intersection. Downshifted (auto), and used the parking brake to make it home.

    Mechanical things fail. Accidents happen. I'm still having trouble givning a shit about this one.

  • DEG||

    It really depends on the car. I had a Mustang with no power steering. Once I was up at speed, like you with your car, I had no problems steering.

    Later I had a mid-80s Town Car. One of the hoses attached to the power steering reservoir burst. I had to drive the car home. Even at highway speeds it was heavy and tough to turn the wheel.

    And like Kinnath says, unexpectedly losing power steering can cause anyone a problem.

  • From the Tundra||

    Thanks, I've been trying to avoid it, too, but this sounds a lot like the "runaway acceleration" bullshit. Bad things can happen while driving, blown tire, brake malfunction, etc. There is almost always a way to safely get out of traffic.

  • kinnath||

    You're looking a piece of equipment with a failure rate of one in ten billion vehicle miles that produces a fatality.

    You could put a new part in the car, and then you would have to wait ten years to see enough real world data to prove the new part is actually better than the one in ten billion failure rate of the old part.

  • Sigivald||

    Exactly. And this is supposed to make me angry at GM?

    (Christ, I despise GM, but this is a non-problem.)

  • Ken Shultz||

    "GM got the shield when NHTSA (the National Highway Transportation Safety Agency) was already investigating the link between the faulty ignition and the crashes. So the question was what did Treasury officials who were negotiating the bailout know?"

    From a management perspective, the question always ought to be, "Should the officials in question have known?"

    If you're going to give the UAW/government owned and run GM a pass on product liability, then you are responsible for doing the due diligence necessary to understand the consequences of that decision.

    You don't do something like that without considering known pending liabilities! That's like not doing your due diligence...

    It's entirely possible that government officials are so profoundly incompetent that they can't even imagine being held responsible for the things that they should have known through due diligence--but no competently run company in the private sector operates that way!

    If your job is to consider the likely consequences of the decisions you make, and the regulators failed to consider the likely consequences of pending liabilities at GM at the time? Then having a nefarious motive is mostly beside the point.

    What did they know? Who cares? They should have known!

  • The Last American Hero||

    Obama: Just tell them you didn't hear about the ignition switch issue until you read about it in the paper.

    Treasury Guy: Are the people going to buy that?

    Obama: Works for me, so it's worth a shot.

  • Ken Shultz||

    It should be noted that all publicly traded companies are required to disclose statements regarding potential risks in their SEC filings.

    I'd be interested to see what GM's SEC filings said at the time about product liability. If the government officials in question were so incompetent that they didn't even bother to read that information in GM's SEC filings, then that would be a smoking gun--if anybody needs to see further evidence--showing how profoundly incompetent those government officials are.

    It's entirely possible that everyone in the financial world knew about GM's pending product liabilities--except for the incompetent government officials in question.

  • Swiss Servator, Frühling!!!||

    IIRC those statements are generally vague and classify liability by entire categories - ie "We face litigation risk in regard to product liability issues, alleging bodily injury, property damage or death. Possible monetary damages and recalls/repairs may be a negative outcome from this"

  • Ken Shultz||

    They can be! Especially if the event in question is uncertain.

    But sometimes they're quite specific. For instance, I believe you're supposed to disclose loss contingencies in cases of pending or threatened litigation or where there are likely to be warrant claims or product recalls.

    Look under: Loss Contingencies -- ASC 450

    I don't have time to look right now, and I'm not saying we're going to find a smoking gun. I'm just saying that there might be a smoking gun there--and again, all I'm trying to prove is that government regulators are profoundly incompetent.

    Journalists might find that information useful.

  • The Late P Brooks||

    Can we get Jack Lew to swear under oath Treasury's sudden decision to dump their GM shares had absolutely no connection with this?


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