GM and the never-ending recalls

GM back in the headlines, recalling 7.6 million vehicles in the US, and 8.5 million across N America

If it’s not airbags, it’s ignition switches. General Motors returns to the headlines with the recall of 7.6 million vehicles in the US (8.5 million across all of North America), once again for concerns of inadvertent ignition key rotation. Seven crashes, eight injuries and three deaths have been linked to this latest batch of vehicles, which spans models from the 1997MY through to the 2014MY. Just a few days ago the OEM recalled 428,211 vehicles in four separate recalls linked to a faulty airbag inflator and a problem with the transfer case control module.

Barra has made safety top priority
Barra has made safety top priority

GM has now recalled nearly 29 million vehicles across North America this year – and we’re only half way through the 12 months.

Karl Brauer, senior analyst for Kelley Blue Book, has been supportive of the corrective action GM is taking, but cautions on the scale to which the recalls are reaching: “So far these recalls haven’t impacted current sales and have had minimal impact on consumer perception, but we’re hitting unprecedented numbers and it’s reasonable for people to start asking, ‘When and where will it end?'”

Chief Executive Mary Barra has pulled out the big guns in response to the crisis, and is making sure the message that safety comes first is getting across. “We undertook what I believe is the most comprehensive safety review in the history of our company because nothing is more important than the safety of our customers,” said Barra. “Our customers deserve more than we delivered in these vehicles. That has hardened my resolve to set a new industry standard for vehicle safety, quality and excellence.”

The company has sacked a handful of executives and is making changes to all processes that have any impact on safety. It has promised to take action on the long list of recommendations from former US Attorney Anton Valukas in his independent report to the company’s Board of Directors. As Barra cleans house, more recalls are expected in the coming months. “If any other issues come to our attention, we will act appropriately and without hesitation,” added Barra.

“In the short-term it reflects a stark inability to identify safety flaws in a timely manner”

“It’s clear Mary Barra has decided this is going to be the defining factor in her tenure as CEO, and there are worse claims to fame then being adamant about vehicle safety,” observed Brauer. “Hopefully, in the long run, it’s seen as a positive evolution for the company, though in the short-term it reflects a stark inability to identify safety flaws in a timely manner.”

At what cost

GM’s mistakes of the past will take a hefty toll on its bottom line today. The OEM has said it expects to take a charge of up to US$1.2bn in the second quarter for the cost of recall-related repairs announced in this quarter, though this does include a previously disclosed US$700m charge for recalls already announced during the quarter.

Then there is the compensation for owners and families. In June, GM announced it would implement a compensation programme for those who have lost loved ones or who have suffered serious physical injuries as the result of an ignition switch failure in any of the recently recalled vehicles. The programme is being independently administered by Kenneth Feinberg, who has handled other high-profile compensation programmes. Claims will be accepted starting 1 April 2014.

Speaking to stockholders on 10 June, Barra described the compensation as a sign that GM was taking responsibility, noting that it “underscores our commitment to do the right thing…and treat accident victims and their families with compassion, decency and fairness.”

Compensation can’t make up for certain losses, but for now it may be the best that GM can do. “GM’s compensation plan for victims of the ignition switch recall appears aggressive and comprehensive,” said Brauer. “The dollar figures appear in line with similar payouts for other victim funds, and the plan’s speed and flexibility in making the payouts suggests GM’s desire to quickly compensate victims. Any dollar figure, ultimately, is a poor substitute for lives lost, but at this point, it’s the only recourse available to both GM and these victims.”

Megan Lampinen

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