How Low Can GM Go If It Faces Criminal Charges?

The iconic Detroit car company announced in February the recall of vehicles with the ignition defect. The bad news for GM shareholders is the company allegedly knew about the defect for nearly 10 years. While GM CEO Mary Barra, in a recent letter to GM employees, said “We will hold ourselves accountable” for the problems that led to the recall, that will not stop short sellers from targeting the stock. In fact, event-driven hedge funds may be continuing to sell the stock short on the hopes that the current gruesome headlines only get worse.

The saving grace, if there is one in such a bad corporate situation, is that GM, along with Chrysler, received a shield from legal liability lawsuits in 2009 as part of the bankruptcy filing and government bailout. That may look good on paper, but it will not help when the sellers start to dominate the buyers.

A GM spokesperson tried to put the best corporate spin on what could be a very difficult situation going forward, especially if the government decides there has been a cover-up of sorts and decides to file criminal charges against the company. GM’s Greg Martin said:

GM is focused on ensuring the safety and peace of mind of our customers involved in the recall. … It is true that new GM did not assume liability for claims arising from incidents or accidents occurring prior to July 2009. Our principle throughout this process has been to put the customer first, and that will continue to guide us.

Investors holding the stock now are faced with two choices. Sell and see if the situation resolves in some form in the future. Hold the stock and hope that the government does not find any sort of conspiracy and go after the company. Either way, shareholders are in for a rocky ride. We will keep a close eye on the situation and continue to update our readers.