Bloomberg News

GM Probed in Delay Over Ignition Defect Linked to 13 Deaths (2)

February 27, 2014

U.S. regulators are investigating why General Motors Co. (GM:US) took years to recall 1.6 million cars over an ignition-switch defect linked to 13 deaths in crashes.

The National Highway Traffic Safety Administration announced the probe yesterday in an e-mailed statement. The agency could fine GM as much as $35 million, which would be the most ever by the agency, if it finds the largest U.S. automaker failed to pursue a recall when it knew the cars were defective.

GM said it was “deeply sorry,” as it more than doubled on Feb. 25 the number of cars it will fix and expanded the number of models affected to seven from two.

“It is a major event for General Motors to apologize,” said Clarence Ditlow, executive director of the Center for Auto Safety, a Washington-based advocacy group that pushed for the expanded recall. “NHTSA will still want its penalty. They’ll want to send a message to the other automakers to toe the line better.”

GM’s Opel unit in Europe today said 2,300 2007 GTs, an eighth model, are included in the recall. The U.S. models are the 2005-2007 Chevrolet Cobalt, 2007 Pontiac G5, 2003-2007 Saturn Ion, 2006-2007 Chevrolet HHR, 2006-2007 Pontiac Solstice and 2007 Saturn Sky. The other model is the 2005-06 Pontiac Pursuit sold in Canada.

Previous Fines

The Detroit-based automaker, like other car companies, has a legal obligation to act on and report safety-related defects in a timely manner. Congress last year increased the maximum fines NHTSA can impose to $35 million to hold automakers more accountable after Toyota Motor Corp. (7203)’s recalls in 2010 due to sudden and unintended acceleration in some models.

Toyota and Ford Motor Co. (F:US) have paid the largest fines of more than $17 million for delaying recalls.

In the GM recall, the company said key rings that are too heavy or jarring can cause ignition switches to slip out of the run position, causing the engines to shut off and a crash-sensing algorithm to misfire in a way that deactivates air bags.

“We deeply regret the events that led to the recall and this investigation,” Alan Adler, a GM spokesman, said in an e-mailed statement today. “We intend to fully cooperate with NHTSA, and we welcome the opportunity to help the agency have a full understanding of the facts. Today’s GM is committed to learning from the past while embracing the highest standards now and in the future.”

Replacement Parts

The first replacement parts should be available in early April, Adler said. Affected owners will receive a letter from GM the week of March 10 informing them of the recall and reminding them to use only a single ignition key until their cars are repaired. A second letter will say when they can contact dealers and schedule a repair, he said.

GM first identified a potential safety issue involving a loss of engine power from a key moving out of position in 2004, according to a timeline the company supplied to NHTSA on Feb. 25. The chronology outlines events that happened between receiving the first field reports and issuing a recall.

GM engineers proposed a redesign of the configuration of the switch opening in 2005 that the company chose not to implement, according to the timetable. Instead, GM fixed the ignition switches under a service bulletin to dealers that was issued in 2005 and updated in 2006.

A step short of a recall, the service bulletin advised dealers to tell customers to remove unessential items from their key chains and add an insert to prevent ignition keys from moving up and down. The company said 474 cars -- out of 1.6 million -- were fixed as part of the effort.

Air Bags

NHTSA officials asked GM in March 2007 about Cobalt ignition switches after discovering a fatal crash linked to air bag failure, which led to an internal company investigation. Part of the current agency inquiry may be why the company didn’t follow up with a recall at the time.

A month later, NHTSA received a detailed crash investigation of a similar crash in which air bags didn’t deploy. Researchers cited evidence that the ignition switch was in the accessory position when it struck a clump of trees.

The research report cited GM’s 2005-2006 service bulletin about losses of power and found six similar complaints in agency databases. The report stopped short of concluding there was a defect, and the agency didn’t follow up with a defect investigation.

“The chronology shows that the process employed to examine this phenomenon was not as robust as it should have been,” GM’s North America president, Alan Batey, said in a Feb. 25 statement.

Lawmaker’s Request

The agency considers the frequency of the incidents, the number of cars covered by the recall and the severity of injuries in determining how much to penalize a manufacturer, said David Strickland, NHTSA’s former administrator.

“They look at the egregiousness of the facts, whether a manufacturer knew or should have known,” said Strickland, who left the agency in January and is now an attorney for Venable LLP in Washington.

GM’s delay in telling NHTSA what it found in internal investigations shows that the reporting system set up in 2000 after a Bridgestone Corp. (5108) recall involving 6.5 million Firestone tires isn’t working, U.S. Senator Edward Markey said in a letter to the agency.

Key Only

The Massachusetts Democrat asked NHTSA to release documents GM provided about fatal crashes in Maryland and Wisconsin, as well as information about how regulators evaluated the defect after they became aware of it.

“The current Early Warning Reporting system is too little, too late,” Markey said in a statement. “Making more information public can help prevent accidents and deadly crashes.”

NHTSA is urging owners and drivers of the affected cars to use only the ignition key while operating their vehicles, and to take them in for the free repair as soon as it’s available, said an agency spokesman, Nathan Naylor.

“NHTSA will monitor consumer outreach as the recall process continues and will take appropriate action as warranted,” Naylor said.

Consumer Attention

The size of the recall and link to fatalities may get the attention of consumers who ordinarily tune out recalls, said Jessica Caldwell, a senior analyst at Edmunds.com.

Toyota’s sudden-acceleration recalls resulted in a loss of showroom traffic for a few months, Caldwell said. When the automaker offered incentives, consumer interest quickly went back to normal, she said.

“It can resonate with consumers, but it’s short-term,” Caldwell said of recalls.

GM may be in a stronger position than Toyota to recover, said Arthur Henry, a senior analyst with Kelley Blue Book in Irvine, California. The company has reorganized itself and its top management since its 2009 bankruptcy.

“You have an old GM, and you have a new GM,” Henry said. “The majority of the models being recalled have been discontinued. The product they’re offering with the new GM is going to be different.”

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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