GM Recall: Could Have Fixed Killer Problem for $5, but Didn’t
The component at the heart of General Motors Co.’s 1.6 million-vehicle recall costs about $2 to $5, according to its manufacturer, a price tag that should provoke more questions about why the problem wasn’t fixed years ago.
Auto parts maker Delphi Automotive PLC told Wall Street analysts this week it expects to spend between $2 to $5 to produce a replacement ignition switch that can then be “swapped out” in a matter of minutes by mechanics at GM dealerships. The figure was reported in a research note written by JP Morgan analyst Ryan Brinkman, who was among a group of analysts that met with Delphi leaders. Delphi, which manufactured the original switch, corroborated the report but offered no additional comment.
The figure suggests GM may spend about $8 million on replacement switches, while also keeping dealership labor costs in check.
GM has linked the defective ignition switches to accidents that cost 12 people their lives – a new figure GM revised Tuesday after discovering that it had previously counted one fatality twice.
The company faces multiple investigations – including a federal criminal probe – aimed at determining why the auto maker didn’t act sooner to fix the faulty ignition switches.
“We have to get to the bottom of this,” said Sen. Claire McCaskill, (D.-Mo.), Chairman of the Subcommittee on Consumer Protection. “We need to find out who dropped ball and put millions of Americans at risk.”
GM has said its employees learned of an incident in 2004 in which a Cobalt lost engine power after the ignition key was jarred out of the on position, disabling the car’s air bags. The car was about to be launched at the time. GM employees replicated the problem in test drives, according to documents submitted to safety regulators by GM. An engineering inquiry was opened.
However, “after consideration of the lead time required, cost and effectiveness of each of these solutions, the [inquiry] was closed with no action,” according to GM.
It wouldn’t be until sometime during the 2007 model year of the Chevrolet Cobalt that the ignition switch was redesigned. But GM didn’t recall the Cobalts or other cars with similar ignition locks until last month.
GM declined to comment further on this timeline.
Separately, GM said Wednesday it has authorized U.S.dealers to give any owner of a car covered in the recall and unhappy with their vehicle a $500 cash allowance to buy or lease a new GM product. The allowance is available through April 30 and can be used on a new 2013, 2014 or 2015 model year Chevrolet, Buick, GMC or Cadillac.
“In keeping with our commitment to help customers involved in this recall, a special, $500 cash allowance is available to purchase or lease a new GM vehicle,” spokesman Greg Martin said. “We have been very clear in our message to dealers that this allowance is not a sales tool and it is only to be used to help customers in need of assistance. Neither GM, nor its dealers will market or solicit owners using this allowance.”
The issue of the cost of the ignition switches and the delays in replacing them will likely be just one facet of the investigations under way. The U.S. Attorney for the Southern District of New York has begun looking into the auto maker’s handling of complaints about faulty ignition switches. The probe is at a preliminary stage.
Senate lawmakers said Tuesday they will open their own probe of the auto maker’s actions. The move came one day after the bipartisan leadership of the House Energy and Commerce Committee said it would investigate the case and hold hearings.
The auto maker is also facing an April 3 deadline in answering 107 questions posed by the National Highway Traffic Safety Administration concerning GM’s timeline on the events leading to the recall. NHTSA is trying to decide if GM was noncompliant in the time it took to initiate the recall.
Meanwhile, owners of the vehicles can’t get their cars repaired until April, when GM plans to begin repairing switches in 2005-’07 Chevrolet Cobalt and Pontiac G5, the 2003-’07 Saturn Ion, the 2006-’07 Chevrolet HHR, the 2006-’07 Pontiac Solstice and the 2007 Saturn Sky. Jarring or too much weight on the ignition key while it is in the ignition may cause the switch to move to the “off” position, disabling the air bags.
GM is taking steps to reassure consumers and regulators that it now is committed to addressing the problem. The auto maker earlier this week said Chicago attorney Anton Valukas, who served as the examiner of the downfall of Lehman Brothers Holdings Inc., will help lead an internal probe of the handling of the ignition-switch recall.
Morningstar Inc. senior equity analyst David Whiston, along with Mr. Brinkman, said the company is likely to shake off any short-term market share loss.
“The company may well lose sales in the short run because of constant negative headlines, but the impact to its reputation depends on how Chief Executive Mary Barra and her team respond over the next few months,” Mr. Whiston said in a research note. “We expect GM will continue to take responsibility and admit fault in how it handled the process.”