The recall blues continue at GM, as does the scope of their previously hidden ignition-switch defect. The world’s largest automaker added 8.45 million more vehicles to its list, with some models going back to 1997. This puts GM over the 28-million mark for cars recalled on a global basis in 2014, and over 26 million domestic:
General Motors Co. (GM), which has already called back more than 20 million cars in North America for various fixes this year, recalled 8.45 million more today for defects including ignitions and electrical malfunctions.
GM is recalling 8.23 million cars for unintended ignition key rotation, including Chevrolet Malibus from 1997 to 2005 and Cadillac CTS cars from the 2003 to 2014 model years. Among the vehicles recalled today, GM said it’s aware of seven crashes, eight injuries and three fatalities. The fatal crashes occurred in older full-size sedans being recalled for the ignition flaw.
It isn’t clear whether the faulty ignition caused those crashes GM said.
Recalls don’t come cheap, either. This recall will cost the automaker an additional $500 million, adding to the $700 million charge it took in the second quarter for the previous recalls. That’s a big loss for a defect known to GM long before the bailout, and known to the National Highway Transportation Safety Administration (NHTSA) during it.
That’s why some investors are likely also saying, “Are you kidding me?” Treasury divested itself of its GM stock in December, just coincidentally before all of the defects became important enough to address. The people who bought that stock had no idea that GM would need to pull 27 million vehicles off the road for critical repairs, but the question will be whether the NHTSA and Obama administration knew about it before dumping their stock. Had any individual investor done that, he’d be looking at a criminal probe from the SEC.
The CNBC analyst asks a good question about GM cars: How many are still on the road? That Subaru lease is looking better and better, I tell you …
Ironically, just an hour or so earlier, Yahoo noted that GM was “restoring trust“:
Since some of the crashes involving Chevrolet Cobalts, Saturn Ions and several other vehicle types occurred years ago — before GM publicly acknowledged the problem — it may be impossible to prove the dodgy ignition switch was a factor. So GM could be stingy with payouts if it chooses to.
But that would defeat the purpose of a compensation fund meant to restore trust with customers. Plus, GM has waived its right to deny liability in cases that occurred before July 2009, when past liabilities were transferred to a husk company as part of GM’s bankruptcy proceedings. Had GM stuck by those terms, victims could have lodged claims against the “old GM” but would have become mere creditors seeking pennies on the dollar from an entity set up to liquidate assets GM shed in Chapter 11. Feinberg’s plan will almost certainly offer more-generous outcomes than that, allowing GM CEO Mary Barra to argue that GM has fulfilled her promise to honor its “civic duty.”
From a financial perspective, however, GM still faces two big challenges. One is a spate of class-action lawsuits filed on behalf of GM customers whose cars may have lost value by being associated with the ignition controversy. So far, GM has recalled nearly 8 million vehicles with the faulty part. One such suit, seeking $10 billion or more in damages, claims the ignition scandal has shaved $500 to $2,600 off the value of a variety of GM vehicles now in the hands of owners. …
Despite the bumpy road ahead, investors seem confident GM will regain cruising speed. The company’s share price is basically the same as it was in early February, when GM announced the first recall involving the ignition switch. And GM sales have remained strong, largely because its current lineup of vehicles is a leap ahead of the shoddy Cobalts and Ions that left the line with the faulty switch. GM, in fact, doesn’t even make those vehicles any more. Sooner or later, the automaker will outrun its troubled past.
There may come a day when GM outruns its “troubled past,” restores confidence and trust with the consumer, and doesn’t issue recalls by the millions. Clearly, though, today is not that day.
Update: There was some confusion over the headline, which noted 8.45 million recalls overall — today. I took that out, as the real “overall” figure is now well above 28 million (a figure I also corrected).