As General Motors CEO Mary Barra prepares to appear at two congressional hearings this week, there is one question on the minds of congressional leaders, investors and especially victims of the ignition switch recall: Will GM pay for claims of incidents that happened before the automaker declared bankruptcy in 2009?
The issue is a controversial one.
Legally, General Motors is not liable for civil claims involving accidents that happened before July of 2009 when the company went through a chapter 11 restructuring. As part of the bankruptcy structured by the federal government General Motors was granted a shield from all civil claims involving their vehicles.
Five years later, that shield is why critics of GM say the automaker won't feel the pain of one of the biggest recalls in recent years.
Connecticut Senator Richard Blumenthal, who warned the White House auto team not to grant post-bankruptcy GM immunity from civil lawsuits involving pre-bankruptcy accidents, wants the Justice Department to step in.
"The only reason that GM has this shield from legal responsibility is that it concealed these defects in its automobiles," said Blumenthal.
Doing the right thing
For GM CEO Mary Barra, compensating victims of recall-related accidents that occurred before her company went through bankruptcy is a tricky question.
On one hand, if GM agrees to pay those claims, it exposes itself to a huge liability that will most likely cost several billion dollars.
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In a research note looking at the automaker's liability, Barclays wrote, "GM could set up a trust to pay old claims and government fines while shielding new GM – we expect $2-3 billion.
This assumes GM will make this move on its own.
When CEO Mary Barra was asked by reporters if she planned to set up a compensation fund for recall victims, she made only vague assurances.
"We will do what's right," she said.
One reason GM has not committed to a victim fund is because it's waiting for the findings of an internal investigation being conducted by former U.S. Attorney Anton Valukas.
Getting past the scandal
A victim fund would be a huge step towards GM getting past the recall scandal.
That said, Barra and the GM board do not want the fund to be open ended. If they can cap it at a certain figure, it would reassure Wall Street and investors that the automaker has a handle on how much of a charge it will take this year.
In a scandal involving the deaths of at least 13 people, and potentially many more, it appears cold and uncaring to discuss how much to set aside for victims.
There is no amount of money that will ease the pain and anguish of many families.
Barra's job as CEO of a publicly traded company, however, is to give investors financial certainty, especially with a recall fund that will result in a massive charge.
We may find out this week what Mary Barra meant when she said GM will do right by those impacted by the recall.
- By CNBC's Phil LeBeau
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