July 1, 2014 at 10:01 am

Daniel Howes

Victim compensation fund patches cracks in GM's credibility

Lawyer Kenneth Feinberg speaks during a news conference June 30, 2014 at the National Press Club in Washington, DC. Kenneth laid out the details of the compensation program he is administrating for General Motors to pay victims and their families that were affected by defective ignition switches installed in 2.6 million GM vehicles. (Alex Wong / Getty Images)

Look no further than Kenneth Feinberg’s victim compensation fund to take the measure of just how badly General Motors Co. botched a defective ignition switch blamed for at least 13 deaths and dozens of accidents.

He calls the shots, not GM’s vaunted legal department or its crack outside lawyers. He decides who has legitimate claims, how much they will receive from GM, how quickly they’ll get it, and why negligence by the driver is considered irrelevant.

He is ensuring victims injured or the families of those killed can make claims without surrendering their right to sue. He is confirming that GM’s shield against liabilities incurred before its emergence from bankruptcy won’t invalidate claims for accidents that occurred before July 10, 2009.

The scope of Feinberg’s victim compensation plan, detailed Monday in Washington, is GM’s open-ended financial response to a scathing internal report detailing more than a decade of neglect, incompetence and dysfunction certain to be implicated in far more than the 13 deaths the automaker has publicly acknowledged.

“There is no ceiling on the payments,” Feinberg said. “Whatever it costs, they will pay.”

This will get worse for GM before it gets better better — as it did again on the final day of the second quarter. Just hours after Feinberg concluded a news conference, GM issued six separate recalls covering another 8.4 million vehicles, taking the automaker’s recall tally this year to more than 29 million cars and trucks worldwide.

It’s staggering: the mounting recalls, the open corporate wallet to pay all claims as they come, the repeated hits to GM’s image, the increasing likelihood that current or former GM personnel will be criminally prosecuted to demonstrate the government’s intent to punish corporate wrongdoing.

How could it do otherwise? There are victims, and more are likely to be identified in the coming months. There is a corporate mea culpa regularly reinforced by serial recalls. Thanks to American taxpayers and the federal bailout of GM, there is a cash and credit-line hoard totaling $35.3 billion, essentially guaranteeing large payouts.

There’s also the likelihood that election-year politics, growing antipathy to big business and bailout backlash could create a combustible combination targeted squarely at one of President Obama’s proudest achievements: the rescue of General Motors, its 200,000 jobs and the communities its operations support.

How, exactly, will CEO Mary Barra answer senators at a fourth congressional hearing later this month wondering whether GM and its leadership can stem the flood of recalls? How can GM credibly argue to those less familiar with the industry’s complexity that the recalls are anything but an indictment of GM’s competence?

It will be tough. However much the faulty switch problems predate her tenure as CEO, surely it won’t escape the attention of Senate staffers that Barra spent the previous three years as GM’s head of global product development.

The initial defective ignition-switch campaign targeted compact Chevrolet Cobalts and other models no longer in production. But the expanded recalls are capturing newer cars and trucks, critical pieces of a GM lineup developed and launched during Barra’s tenure as product chief.

Put another way: The contours of the crisis are still being shaped. We don’t know how many more vehicles GM is likely to recall and for what; how many more deaths, serious injuries and accidents will meet Feinberg’s criteria and become claims on GM’s cash; where parallel federal investigations by regulators, the Securities and Exchange Commission and the U.S. Attorney in New York will lead.

Rightly or not, GM’s scandal carries all the hallmarks of stereotypical corporate wrongdoing. Insiders responsible for mistakes that can be linked to accidents and deaths compound the problem with more mistakes, cover their tracks, demonstrate callous disregard for the welfare of customers and kick the whole mess upstairs — where executives basically do nothing until the scale of the evidence is too damning to ignore.

GM’s compensation fund — and Feinberg’s independence to run it and freely spend the company’s money — lends credence to Barra’s pledge to “do the right thing” for GM’s customers and, by extension, her company’s credibility. So does her brutal public airing of GM’s failures, her move to fire 15 individuals and discipline another five, and her restructuring of the company’s safety apparatus.

Sen. Richard Blumenthal, a Connecticut Democrat harshly critical of GM, tweeted that the automaker’s compensation fund “is an important step toward justice” and “heeds the call that I made for GM to take responsibility for its failings.”

But as the mess metastasizes, as more stories of victims reach the public and political consciousness, it’s reasonable to assume that GM’s corporate bloodletting of people, processes and what promises to be a boatload of cash won’t be deemed sufficient penance for an epic foul up. There will be demands for executive firings, too.

Then what? GM is on its fifth CEO in five years, hardly the model of corporate stability. Dumping another one won’t change the fact that it must face its failure, root out its problems, chart a path back and stick with it.

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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.