Q1 Recall Charge at GM for Ignition Switches Now at $1.3 Billion. More Shareholder Earnings Nicks Will be Coming


The question, asked repeatedly at Congressional hearings, is why did it take a decade to recall wa defective ignition switch whose failure caused cars to stall suddenly while the airbags were disabled.

GM said today that it will take a charge of about$1.3 billion in Q1 for the cost of safety recalls, mostly ignition switches,  announced thus far in 2014. This  includes the $750 million charge previously announced on 31 March.

The ultimate price to shareholders for the defective ignition switches is unknown, but will likely be billions of dollars. At least 13 deaths and 31 wrecks are alleged from the safety defect that GM has known about since 2004 before the cars went on sale.

GM also faces possible criminal charges  against it, although NHTSA has never taken this step over a botched U.S. safety matter. The agency has been accused of being the “lap dog” of the auto industry during Congressional hearings into the sordid Toyota matter, where ex Toyota employees working for NHTSA in revolving-door Washington inhibited agency investigations. Questions are also being raised about NHTSA’s lack of action over the defective ignition switches that it had reports on.

The recalled vehicles with defective ignition switches are small cars where an airbag is perhaps more important during a crash than on larger ones, including Chevrolet Cobalt and Pontiac G5 cars from the 2005-2007 model years, Saturn Ion compact sedans from 2003-2007, as well as 2006-2007 Chevrolet HHR SUVs and Pontiac Solstice and Saturn Sky sports cars sold in North America. Globally more cars outside of NHTSA’s authority are involved.

On a preliminary basis, despite the $1.3 billion recall charge, GM also said it currently expects to report “solid core operating performance” in the first quarter financial results.

In February 2014, GM admitted to NHTSA for the first time that it acknowledged a link between the ignition switch to the airbag non-deployment, as well as proving other information regarding parts changes, discussions with suppliers, and other efforts currently under investigation.

NHTSA is currently fining GG $7,000 a day for its lack of answers so far – the maximum allowed under law – and chump change for a company with a more than $50 billion  market capitalization.

The core issues remain – was GM honest in presenting its data to NHTSA and was NHTSA doing its job? Damning is the fact that supplier Delphi of the defective ignition switches, a former GM subsidiary, changed the design without changing the part number, years after the problem was identified. GM should be in charge of the part number, of course. There are also internal GM memos that suggest that the cost of a recall prevented it.

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About Kenneth Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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