Legally, the city has an argument. It's no different than any defective product when the manufacturer is aware of the defect and doesn't do something to fix it. The manufacturer becomes liable for the foreseeable ramifications of that defect.
Here, if an individual was suing because the problem led to their car being stolen, we'd all immediately see the legal argument. The manufacturer does too, that's why they issued what recalls they did and anti-theft responses. But the cities are also being affected and there's a cost to them as well.
I don't know what evidence they'll need to prove their point but I don't think it's as uphill as others might think. They can show when the problem began, differences in car theft attempts before and after the problem became known, difference in theft success before and after, number of calls made to police stations based on these thefts, what percentage the call volume increased, the impact on police resources, etc.
If they can cleanly tie the data together, it's a winnable case. Other cities have sued companies over products that lead to dangers to their citizens and been successful.
