Bloomberg News

GM Reports 3 More Recalls, ‘Redoubles’ Safety Efforts

March 17, 2014

2013 Cadillac XTS

The front of a General Motors Co. 2013 Cadillac XTS. GM is being scrutinized as it works to recall 1.6 million small cars with faulty ignition switches linked to at least 12 deaths. Source: Cadillac via Bloomberg

General Motors Co. (GM:US) is recalling 1.55 million vans, sedans and sport-utility vehicles, citing concerns over brakes, seat belts and air bags, adding to 1.6 million cars recalled this year due to faulty ignition switches.

The automaker also said it expects about $300 million in expenses in the first quarter to cover the cost of repairs for the more than 3 million vehicles, according to a statement today. Delphi Automotive Plc, the auto supplier that was once part of GM, is adding a production line to expedite supply of replacement parts, Barra said in a video statement.

The new round of recalls follows criticism that GM was slow to act on earlier concerns over vehicle safety. It took the automaker more than a decade to begin recalls on the Cobalt and other small cars that were the subject of complaints as early as 2003. The ignition switch defect threatens to harm GM’s reputation and complicate efforts under Chief Executive Officer Mary Barra to recover from its 2009 bankruptcy.

“They are trying to be responsive to the general issues that lead to recalls, however this doesn’t really affect the matter at hand, which is the recall of the Cobalt” and other small cars, said Alan Baum, an analyst at Baum & Associates in West Bloomfield, Michigan. “They can’t undo the underlying problem, and that is the time lag from when this was determined internally, and when it was acted upon.”

GM discovered ignition-switch problems in 2001 while developing the Saturn Ion small car and thought it had addressed them before the model went into production, the Detroit-based company told regulators last week. The Ion, Cobalt and other small cars were recalled last month after the defective switches had been linked to at least 12 deaths.

‘One Step’

“Something went wrong with our process in this instance and terrible things happened,” Barra said in a videotaped message to employees on the company website. “As a member of the GM family and as a mom with a family of my own, this really hits home for me. We have apologized. But that is just one step in the journey to resolve this.”

The recalls announced today cover the Chevrolet Express and GMC Savana vans from 2009-2014 to rework instrument-panel material, Cadillac XTS sedans from 2013 and 2014, because the brake-booster pump could lead to engine-compartment fires, and several sport-utility vehicle models in which the side-impact restraints may not deploy if the Service Air Bag warning light is ignored. The covered SUVs are the Buick Enclave and GMC Acadia models from 2008 to 2013, Chevrolet Traverse from 2009 to 2013, and Saturn Outlook from 2008 to 2010, GM said a statement.

Redoubled Efforts

“I asked our team to redouble our efforts on our pending product reviews, bring them forward and resolve them quickly,” said Barra, who started at the company as a college intern.

The CEO’s video message may have helped mitigate any damage to her reputation as the leader of the company. She took the top job in January, about a month before the recalls were announced.

“It does make her more human to mention her status as a mom as part of the commitment to safety because moms want to hear that,” said Kaitlin Wowak, an assistant professor of management at the University of Notre Dame in South Bend, Indiana. “But the tricky part for her is that since she came up through the ranks of GM, she’s not going to get as much leeway as she would if she were an outsider coming in.”

Decade Wait

GM said last week that in 2003, service technicians found that an owner with a heavy key ring was experiencing engine stalls while driving that it thought were solved in 2001. Previously, the company said it had investigated in 2004 a consumer complaint and engineers were able to induce an engine stall. GM officials have said the problem was investigated at that time and no action was taken.

The flaw caused ignition switches to slip out of position, cutting off engine power and deactivating air bags. Media reviews of the Cobalt also publicized the ignition-switch problems in 2005. GM engineers learned of airbag failures in a 2007 meeting with the National Highway Traffic Safety Administration, GM has said. The first recall was Feb. 13.

Barra said today in the video that GM has sent recall letters to customers and will send letters to dealers the week of April 7 to outline the recall steps. A separate production line is being added at the supplier of the replacement part to double the capacity to make parts, and GM has added employees at call centers to focus on customer questions, she said.

“Our system for deciding and managing recalls is going to change because of this,” she said.

Multiple Investigations

In addition to a probe by NHTSA, the Justice Department has also opened a probe into whether GM executives violated criminal or civil laws by failing to notify regulators, said people familiar with the action. U.S. House and Senate committees have said they will investigate.

The recalled small cars are the 2003-07 Saturn Ion, 2005-07 Chevrolet Cobalt, 2006-07 Chevy HHR, 2006-07 Pontiac Solstice, 2007 Saturn Sky, 2007 Pontiac G5 -- all U.S. models -- plus the 2005-06 Pontiac Pursuit marketed in Canada and the 2007 Opel GT in Europe.

GM rose (GM:US) 1.6 percent to $34.63 at the close in New York.

The shares have slipped 2.6 percent from Feb. 12, the day before the first ignition recalls were announced through yesterday. The estimated $5 billion in lost market value may indicate investors are concerned the automaker will lose market share in addition to the $300 million in recall costs, Joseph Spak, an analyst at RBC Capital Markets, wrote in a report today after the second recall was announced.

“It does appear GM is trying to send a message of a refocused company and providing consumers with greater ‘peace of mind,’” Spak wrote. “But to the average consumer, the negative headlines continue. For GM, you could argue these headlines are coming at the worst possible time given elevated industry pricing fears.”

To contact the reporter on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Niamh Ring


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