DETROIT, MI- General Motors Co. appears to be making a lot of the right moves regarding the recall of 1.6 million vehicles for an ignition switch problem that has been linked to 12 fatalities.
In fact, GM CEO Mary Barra has personally apologized for the issue and promised to cooperate with numerous government organizations investigating how GM handled the recall. The company also has appointed a new vehicle safety czar; instructed dealers to offer owners of the affected cars loaner vehicles until their vehicle is fixed and $500 on new cars to replace the recalled ones; and hired a lawyer to conduct an internal investigation.
All those actions, while helping GM save face, might not make a difference down the road, according to industry analysts. The “old GM,” as the Detroit-based automaker is now referred to as before its government-backed bankruptcy in 2009, may have drove the “new” company down the same long road as Toyota Motor Corp., which after a four-year government investigation will pay $1.2 billion in connection to withholding information regarding sudden acceleration problems with some of its vehicles.
While different in nature – particularly since the “new GM” isn’t technically responsible for any accidents and deaths that occurred before it emerged from bankruptcy in July 2009 – there are similarities.
“What really hung up Toyota was the fact that they didn’t come forward with everything that they knew as soon as they knew it,” said Kelley Blue Book senior analyst Alec Gutierrez. “That’s really kind of the big situation with GM.”
GM currently faces NHTSA, two congressional committees and the Justice Department investigating its actions in recalling the older-model vehicles for faulty ignition switches. The automaker, according to reports, knew as early as 2003 that the switches could unexpectedly shut down car engines and cause drivers to lose control. But the vehicles – ranging from 2003-2007 model-years – were not recalled until last month.
Gutierrez said GM will most likely go through the same scrutiny as Toyota, but it might not necessarily be an exact foreshadowing of what’s to come for the Detroit-based automaker.
As numerous industry analysts pointed out, the GM recall is dealing with vehicles that are no longer production, while Toyota’s record-breaking fine dealt with vehicles in their current showrooms.
Also, as part of its government-backed bankruptcy, the “new GM” is not responsible for legal claims relating to incidents that took place before July 2009. That means the “new GM” could be responsible for post-bankruptcy accidents, if investigators find it withheld information or didn’t act quickly enough, according to analysts.
Jack Nerad, KBB executive market analyst, said every day that passes limits GM’s liability.
“Presumably, most of them worked just fine,” he said. “That’s not to say that someone who has one of these shouldn’t do the fix, they absolutely should. But in some instances there might not be an issue with an individual car.”
The ignition switch problem, which has been linked to 12 deaths and 31 crashes, can be caused by a heavy key ring or jarring from rough roads that can cause the ignition switch to move out of the run position and shut off the engine and electrical power. In the fatalities, the air bags did not inflate, but the engines did not shut off in all cases, GM said.
Vehicles involved in the recall include 2005-2007 Chevrolet Cobalts and Pontiac G5 models; 2003-2007 Saturn Ion compacts; and 2006-2007 Chevrolet HHR SUVs, Pontiac Solstice and Saturn Sky sports cars.
To fix the problem, dealers will replace the ignition switch to prevent the unintentional or inadvertent key movement. Until this correction is performed, GM, in a letter to the National Highway Traffic Safety Administration, said it is “very important” that drivers remove all items from their key rings except for the ignition key.
John Alan James, executive director of the Center for Global Governance, Reporting and Regulation at Pace University’s Lubin School of Business in New York City, said he feels the “new” GM will somehow be punished for the “old” GM’s missteps.
“These failures in corporate governance carry major financial risks and even more important, reputational risks which damage the corporate image, possibly for years to come,” said James, who has advised clients including 50 of the U.S. Fortune 100 major multinational corporations and foreign companies.
James pointed out that the U.S. Justice Department could continue to use the a section of the law called “wire fraud,” as it did with Toyota, to fine automakers that mislead the public or regulators.
GM officials have continued to say they will work with investigators in every way possible and fix the affected vehicles as fast as they can with dealers.
“We will hold ourselves accountable and improve our processes so our customers do not experience this again,” Barra said last month in the email to employees. Barra also said she “deeply” regrets the circumstances that brought GM to this point, but she appreciates “how today’s GM has responded so far.”
Industry analysts said they don’t expect GM’s sales and reputation to be damaged as much as Toyota’s, but the financial impact, including penalties and court settlements, could impact its bottom line.
“They’re doing the best they can in a very, very difficult situation,” Gutierrez said. “It seems like they’re doing the right things, getting the processes in place to prevent this from ever happening again.”
GM [NYSE: GM] closed Wednesday at $34.91 per share, down 26 cents.