General Motors

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

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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 General

Cobalt Crash
The 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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  1. To got with the heading, the picture for this article should have been Sgt Schultz from Hogan’s Heroes.

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

    Or alt-text for that matter.

    1. Oh, SNAP.

  3. 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?

    1. 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’…

      1. 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.

  4. “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!

  5. 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.

    1. 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.

      1. 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”

        1. 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

          http://www.kslaw.com/imageserv…..ar2013.pdf

          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.

  6. 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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