General Motors Company (GM) reported that it had announced an astounding 84 safety recalls in North America last year, covering a total of 30.4 million vehicles (including exports). Of these, almost 27 million vehicles were recalled from the U.S.
The largest of the recalls was announced in Jun 2014, covering nearly 6.6 million 1997–2005 Chevrolet Malibu, 1998–2002 Oldsmobile Intrigue, 1999–2004 Oldsmobile Alero, 1999–2005 Pontiac Grand Am, 2000–2005 Chevrolet Impala and Monte Carlo, and 2004–2008 Pontiac Grand Prix in North America. These cars had a problem related to unintended rotation of the ignition switch.
However, the most damaging of the recalls was the delayed recall of 2.6 million vehicles with defective ignition switches. According to the company, a heavy key ring or uneven roads can cause the ignition switch to shift away from the run position, thus turning off the engine and electrical power. In such a situation, the front air bags will not inflate in case of a crash.
While General Motors announced the recall in 2014, it emerged that the company had identified the problem in 2001. Legally, automakers are supposed to alert the National Highway Traffic Safety Administration (“NHTSA”) about any safety concern related to vehicles within five business days of identifying the problem.
Recently, a Texas attorney revealed that General Motors had ordered about half a million replacement ignition switches almost two months before announcing the recall. The automaker is facing multiple investigations (including a criminal probe) and lawsuits for the delay.
General Motors agreed to pay a fine of $35 million to the U.S. safety regulators in relation to the late recall. This is the maximum amount of fine which the government can impose. The company has also launched a program to compensate the victims and families affected by crashes caused by the ignition switch problem. To assess the claims and deploy funds, General Motors has appointed Kenneth Feinberg, who will deal with the claims registered between Aug 1, 2014 and Jan 31, 2015.
General Motors currently carries a Zacks Rank #3 (Hold). Investors interested in the auto industry could consider better-ranked stocks like Delphi Automotive PLC (DLPH), Gentex Corp. (GNTX) and Dana Holding Corporation (DAN), all carrying a Zacks Rank #2 (Buy).
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