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General Motors Rejects 91% of Faulty Ignition Switch Claims

Zacks Equity Research

General Motors Company GM will have to provide compensation for less than 10% of the ignition switch claims filed, as the lawyer hired to assess the claims, Kenneth Feinberg, has rejected nearly 91% of them. According to Feinberg, only 399 of the 4,343 claims filed were eligible to receive compensation. He rejected the remaining 3,944 claims.

Of the approved claims, 124 are related to death cases and 275 to injuries. Among the approved injury claims, 17 resulted in quadriplegia, paraplegia, double amputation, permanent brain damage, or pervasive burns, while the remaining 258 claims were for physical injuries that resulted in hospitalization or outpatient treatment within 48 hours of the accident. Till yesterday, offers made to 325 of the approved cases were accepted and 8 were rejected, while recipients of the remaining 65 cases had not decided whether to accept.

According to the deputy administrator of the fund, Camille Biros, most claims that were rejected were not related to the ignition switch recall. There were cases where the cars involved were not covered under the recall, while in others the air bags had inflated in the crash, implying that the ignition switch was working.

For the approved death claims, the families are eligible to receive over $1 million each. General Motors has a fund of around $625 million to provide compensation for the approved claims. As of Jul 17, 2015, the company had spent $280 million toward the compensation of such claims.

All these problems have resulted from the delay made by General Motors in recalling 2.6 million vehicles with defective ignition switches, which can lead to engine shutdown and hinder deployment of front air bags in the event of a crash. The company issued a recall in Feb 2014, although the problem was identified long back in 2001. Legally, automakers are supposed to alert The National Highway Traffic Safety Administration (“NHTSA”) about any safety concern in vehicles within five business days of recognizing the problem. However, General Motors had failed to do so. The automaker is facing around 181 wrongful death or injury lawsuits related to the ignition switch recall in the U.S. and Canada.

Currently, General Motors carries a Zacks Rank #3 (Hold). Some better-ranked automobile stocks include Ford Motor Co. F, CarMax Inc. KMX and U.S. Auto Parts Network, Inc. PRTS, all carrying a Zacks Rank #2 (Buy).

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FORD MOTOR CO (F): Free Stock Analysis Report
 
GENERAL MOTORS (GM): Free Stock Analysis Report
 
CARMAX GP (CC) (KMX): Free Stock Analysis Report
 
US AUTO PARTS (PRTS): Free Stock Analysis Report
 
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