General Motors faces a backlash over its admittedly poor handling of a recall now covering 2.6 million vehicles with potentially defective ignition switches, some of them linked to at least 12 deaths and 31 crashes.
GM is clearly looking for a way to salvage its reputation and minimize the long-term impact as Congress, the U.S. Justice Department and the National Highway Traffic Safety Administration press forward with investigations. In addition, there are several potential class-action lawsuits and now, growing calls for the automaker to set aside a victims’ compensation fund while providing loaner vehicles to those who’d prefer not to drive the recalled vehicles until they can be fixed.
The controversy over GM’s handling of the ignition switch problem, an issue it apparently knew about for at least a decade, is also spurring calls to stiffen regulations covering vehicle safety defects. A new bill introduced in the Senate would require manufacturers to provide federal regulators with more information about fatal crashes involving their vehicles. That information would also become more accessible to consumers.
“A massive information breakdown” has led to “deadly vehicle breakdowns on our roads,” declared Sen. Edward Markey, a Massachusetts Democrat, and one of the sponsors of the new bill.
The call for tougher legislation comes a decade after Congress passed the TREAD Act, that was intended to keep unsafe vehicles off the road. But critics, such as former NHTSA Director Joan Claybrook, have argued that the laws aren’t working.
And they point to not only the General Motors ignition switch recall but this month’s $1.2 billion deal between the Justice Department and Toyota that settled an investigation triggered by the Japanese maker’s delayed handling of problems related to so-called unintended acceleration. Linked to a number of deaths, it also led to the recall of more than 10 million vehicles in 2009 and 2010.
Also, on Friday, General Motors told dealers to stop selling some 2013 and 2014 Chevrolet Cruze compact cars. But the company didn't say why or announce a recall. Dealers say stop-sale orders are routine and almost always made to fix a safety problem. They received the order in an e-mail Thursday, but no reason was given.
But the more immediate concern is resolving GM's ignition switch recall, which expanded Friday from a previous 1.6 million vehicles to nearly 2.6 million, most of them compact sedans produced by Chevrolet and several other GM brands. The switches can, under certain circumstances, switch from "On" to "ACC" or "OFF," potentially causing the engine to stall and the vehicle's airbag systems to deactivate.
The maker has acknowledged that it first had signs of a problem as early as 2001, several years before it put one of the troubled models, the Saturn Ion, into production.
As NBCNews earlier reported, GM eventually replaced a troubled ignition switch with a more robust component, but while it advised dealers on how to make repairs if owners complained, it declined to order a full recall.
Since announcing the recall in February, GM has struggled to do damage control. New CEO Mary Barra has repeatedly apologized and promised to take steps to improve the company’s handling of future safety problems.
Meanwhile, GM is racing to make available the necessary replacement switches and has offered to provide loaners to owners of the recalled vehicles who prefer not to operate them until they’re repaired. News reports indicate a judge in Texas may mandate loaner vehicles. But that would be a challenge if all the existing owners were to participate.
Trade publications have reported that some dealers around the country are already struggling to provide enough loaner vehicles, in some cases turning to local rental car providers to offer additional cars.
Longer-term, GM faces other challenges. As things now stand, it could actually sidestep some potential legal costs as the terms of its emergence from bankruptcy five years ago means it is no longer legally liable for claims resulting from crashes and product defects occurring prior to 2009. But safety advocate Claybrook is just one of many calling on GM to waive that immunity.
Influential analyst Brian Johnson, of Barclays, cited sources indicating GM might establish a special fund – possibly to the tune of as much as $1.5 billion or more – to cover settlements with victims and their families.
But GM is almost certain to face additional costs. It is facing legal action on behalf of shareholders who feel it misled them about its financial conditions by hiding the ignition recall problems. There is the increasing likelihood of fines to come from NHTSA, and possibly from the Justice Department, should it find potential criminal or civil liability.
Equally worrisome, investigations into three newer GM recalls could reveal an even more endemic failure of the GM system to address safety problems.
Considering the maker’s recent profitability, it could likely handle the fines, the cost of a victim’s fund and even some of the lawsuits it is facing. But the bigger challenge will be reviving its reputation – which bottomed out after the 2009 bankruptcy.
Ironically, third-party studies have shown the latest GM products are delivering better quality and reliability than ever before. But CEO Barra and company will have to prove the maker also cares about customers’ safety or else millions of potential buyers could steer clear of GM showrooms.
More from The Detroit Bureau:
Another Big Recall From Toyota
Nissan Recalls 1 Mil Vehicles for Airbag Problems
What Are the Most Expensive Vehicles to Operate? You May be in for Some Surprises
First published March 28 2014, 10:12 AM