Posted by Connor Lynch.
An article from The Wall Street Journal titled, “General Motors May Face Punitive Damages Over Ignition Switches” is a perfect example of short-run profit maximization versus long-run profit maximization. As of November 9, General Motors can face punitive damages in several lawsuits regarding defective ignition switches in millions of vehicles. Although those vehicles have all been recalled, the defective part has been linked to more than 100 deaths.
U.S. Bankruptcy Judge Robert E. Gerber has linked GM to the deaths and injuries caused by the defective part in millions of their vehicles. After the case has been discussed, “Texas lawyer Robert Hilliard, who represents people suing GM for injuries and deaths tied to the defective ignition switch, called the decision ‘a major win’ for plaintiffs, contending that punitive damages are the only way to properly compensate victims who have been harmed by the defect.” Although it seems as if it was a complete loss for the defendant, a GM spokesperson said the company disputed the statement that the ruling was an utter victory for plaintiffs.
Punitive damages are damages intended to deter the defendants and others from getting involved in conduct that is similar to the actions that formed the basis of the lawsuit. Punitive damages are also used to punish corporations for wrongdoing such as selling defective products. Those defective products usually lead to death/injury which often can lead to large awards from the jury. It is unclear to what the punitive damages of this case will amount to: “Judge Gerber at one point in his ruling suggested GM’s punitive damages exposure could amount to millions, if not billions, of dollars, though any actual exposure will depend on whether legal claims against the company are settled or ultimately successful.”
This is not the first time that General Motors has been involved with a defective product recall resulting in punitive damages. Last year GM agreed to pay $35 million for failing to alert the public about the specific defect in a timely manner. Judge Gerber’s ruling stems from separating the “Old GM” and “New GM” because of the controversial belief that GM has retained liabilities pertaining to their restructuring.
“Old GM” had so many problems at one point that they were forced to restructure and become a new and reformed company. This has resulted in product-liability, “GM, as part of the bankruptcy restructuring, agreed to assume responsibility for future product-liability cases involving older vehicles, or those under the purview of Old GM.” General Motors’ reconstruction has allowed them to avoid several lawsuits because of their “bankruptcy shield.” Judge Gerber has ruled that “New GM” may be held responsible for the recent defective ignition switch that has caused over 100 deaths. Punitive damages may be sought out to the extent of new GM’s knowledge on the subject matter involving the defective ignition switch. Because of all the injuries/deaths, there are over 1,000 plaintiffs represented by Texas attorney, Mr. Hilliard. General Motors seems as if it is doomed to pay more money in punitive damages in addition to the $575 million they have paid recently to settle cases involving defective products.
Connor is an accounting/finance major at the Stillman School of Business, Seton Hall University, Class of 2018.