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GM Cars Retain Value Despite Suit Claim of Loss from Recalls

Some GM car values have risen, contrary to the assertion in a suit for economic losses suffered by owners as a result of GM's safety-related recalls.
General Motors cars are holding their value, contrary to a lawsuit that says owners suffered economic loss from a series of recalls.
The Chevrolet Camaro and Corvette during the 2011 New York International Auto Show. General Motors cars are holding their value, contrary to a lawsuit that says owners suffered economic loss from a series of recalls.TIMOTHY A. CLARY / AFP - Getty Images
/ Source: The Detroit Bureau

The value of some General Motors cars has risen recently, contrary to the assertion in a recent lawsuit seeking as much as $10 billion from the automaker for economic losses allegedly suffered by vehicle owners as a result of GM's safety-related recalls, which have added up to 20 million worldwide so far this year.

According to three of the firms that most closely track trade-in prices – or, in industry terms, “residual values,” GM vehicles do not appear to have actually lost significant value on the used car market.

The vehicles likely to have shown the biggest impact would have been the 2.6 million covered by GM’s original ignition switch problem, first announced in February. But Black Book data shows that a 6-year-old Chevrolet Cobalt increased $150 in value between March and May of this year compared with the same three-month period in 2013.

“As far as any impact on value, we haven’t seen it,” said Black Book Editor Ricky Beggs. There has been, “no effect on residuals from these recalls whatsoever.”

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Kelley Blue Book, or KBB, also saw an increase. While some prices have dipped slightly, according to ALG, formerly known as the Automotive Leasing Guide, the dip is minimal, and “short-term” and, perhaps more important, absolutely in line with the normal shifts in value of products from competing brands.

“Residuals are slipping because there’s more of a supply” of nearly-new vehicles now that the new car market is recovering, stressed Scott Painter, chairman of ALG and CEO of its parent company,

The lawsuit seeking damages for lost value was filed on Wednesday by a Seattle law firm that specializes in consumers rights issues, Hagens Berman Sobol Shapiro. It argues that owners of products such as the Chevrolet Cobalt sedan and sporty Chevy Camaro coupe not only paid more than they should have, but will get back less in trade-in as a result of GM's rapidly expanding list of recalls, which has grown to nearly 18 million vehicles in the U.S. this year.

The case could be worth more than $10 billion and is the first seeking to force GM to pay a potential 15 million car and truck owners, not just those whose vehicles were recalled, for damage to its brand and reputation. The lawyers did not say how they came up with the $10 billion figure.

The suit was filed on the same day GM CEO Mary Barra returned to Capitol Hill for hearings on the maker’s problems, in particular, the decade-long delay in recalling vehicles equipped with a faulty ignition switch linked to at least 13 deaths. GM also faces an investigation by the Justice Department that could lead to criminal charges and huge fines.

But despite the breadth of its recall problems, the class-action lawsuit appears, at best, to rest on shaky data and emotional appeal. If anything, the numbers generally suggest that the maker’s recall problems have had little, if any impact on the sale of either its new or used vehicles, nor on the prices consumers have been willing to pay.

“GM came out of bankruptcy making claims that the company would produce high-quality, safe vehicles, a branding position that served GM well, and that consumers relied upon,” Steve Berman, managing partner of Hagens Berman said in a statement. “Now we know that contrary to those claims, GM was instead wallowing in a dysfunctional culture more concerned about hiding defects and safety flaws than living up to its purported brand promise.”

Despite promises to make him available for an interview, Berman could not be reached to discuss the suit further. In a news release, the firm estimated that a “forensic” examination showed that the value of “GM-branded vehicles” decreased “from $500 to more than $2600 per vehicle and may go higher on some vehicles.”

In fact, there are no GM-branded products. Prior to the maker’s bankruptcy, it sold vehicles under eight different brands, half of which vanished following its July 2009 emergence from Chapter 11. Despite that sort of legalese nit-picking, the question is whether GM vehicles actually have lost significant value on the used car market.

In his firm’s lawsuit, Berman also claimed that motorists paid more for new GM vehicles than they should have, had they “known that the manufacturer had gone to such great lengths to hide safety defects.”

It’s difficult to know what the hypothetical buyer of a 2010 Chevy Camaro might have done had all of GM’s safety problems been revealed four years ago. But it is possible to look at what is happening today. And, if anything, the numbers again work in the automaker’s favor. GM’s sales rose 12.6 percent for the first five months of 2014 – ahead of the industry average gain of 11.5 percent.

Kelley Blue Book reports that GM’s average transaction prices – what the typical consumer paid after calculating in discounts and options -- rose to $34,783 in May, second-highest among mainstream makers, from $33,955 a year earlier. Meanwhile the incentives normally used to lure in reluctant buyers, have declined, though GM continues to offer some of the industry’s largest givebacks – as it has for years.

In the Hagens Berman news release, attorney Berman concludes: “GM’s egregious and widely publicized conduct, including the seemingly never-ending and piecemeal nature of GM’s recalls, has so tarnished the affected vehicles that no reasonable consumer would purchase them for what would otherwise be fair market value for the vehicles.”

While it is hard to dispute that GM's corporate image is tarnished, it’s far less apparent that this has translated into any measurable financial loss for owners. If anything, GM cars appear to be commanding strong prices, new or used.

For its part, GM officials declined to comment on the lawsuit. TrueCar’s Scott Painter was far less circumspect. He declared the suit, “opportunistic and despicable,” concluding it is “absolutely without validation and scientific merit.”

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