General Motors has committed to paying all of its ignition-switch claims out of its own pocket. David Roman, the company's director of financial communications, told Business Insurance, "It will be done through cash on hand, no insurance."
It's not entirely clear how much damage the out-of-pocket compensations will do to GM's wallet, although families of those killed are eligible for $1 million, at minimum. The final number, Roman said, is up to Kenneth Feinberg, the man in charge of formulating the unlimited claim structure. "There's no cap on it," Roman said. "Mr. Feinberg will have the final determination on numbers."
The move to avoid liability insurance should do some good for the company's tattered reputation, following the recall of 29 million vehicles and the deaths of at least 13 people. "They've arguably made one of the best strategic moves for reputation restoration. It will be expensive, but it beats the alternative," Nir Kossovsky told Automotive News. Kossovsky is the CEO of Steel City Re, a company that that specializes in corporate reputation management.
Another consultant group, Hawthorn Group LC, echoed that opinion. "A company almost has no choice but to go this route. I think it's the right thing to do even from a cost/benefit standpoint. Years of litigation could be more harmful to the company and even more expensive," Larry Walsh, a vice chairman at Hawthorn, told AN. "It seems to me a smart way to go. It is trying to reach out to people directly, deal with them honestly."
This may be a good PR move, but with the sheer number of potential claimants, not to mention outside lawsuits from those who don't choose to settle, it will be interesting to see the long-term effects that this strategy has on GM's bottom line.