The National Highway Traffic Safety Administration (NHTSA), the auto safety supervisory body of the U.S. government, announced an investigation into General Motors Co.’s (GM - Analyst Report) delayed recall of 1.6 million older-model small cars. This came in the wake of reports of 31 crashes with 13 front-seat fatalities caused by collisions of the vehicles.
After the report of the accidents, General Motors announced a recall of 842,000 2003-2007 Saturn Ions, 2006-2007 Chevrolet HHRs, and 2006-2007 Pontiac Solstice and Saturn Sky models in addition to the recall of 778,562 Chevrolet Cobalt and 2005-2007 Pontiac G5 compact cars in North America in Feb 13, 204. With this, the company is recalling 1,367,146 vehicles in total.
The company will fix the faulty ignition switches, which has been identified as the cause of the accidents. According to General Motors, 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 be inflated in case of a crash.
General Motors is focused on resolving the issue and also apologized for the delay. The company will be informing customers though customer care centers and social media teams. It will also rectify the fault at no extra charge.
General Motors notified that dealers will replace the ignition switch to prevent the involuntary key movement. Till the replacement is done, customers have been advised to use only the ignition key without anything else on the key ring. Moreover, customers should use their safety belts.
The chronology of events filed with the NHTSA, clearly points out General Motors’ awareness of the problem since 2004, when its engineer detected the hitch while test driving the 2005 Chevrolet Cobalt. The company initially attempted to avoid a recall by issuing Technical Service Bulletins for the problem. The bulletin advised inserting a key into the ignition switch of the Chevrolet HHR and Cobalt, Pontiac Solstice and G5 and Saturn Sky and Ion vehicles. Moreover, the automaker also advised its customers not to use overloading key chains.
General Motors was aware of 10 accidents of 2005 Chevrolet Cobalt, where the air bags did not inflate. Under this investigation, NHTSA will inspect whether General Motors withheld information or the automaker was late to report.
Lawfully, the automakers are supposed to alert the NHTSA about any safety concern in vehicles within five business days of recognizing the problem. The maximum fine for late reporting currently stands at $35 million.
Earlier, automakers like Ford Motor Co. (F - Analyst Report) and Toyota Motor Corp. (TM - Analyst Report) have been fined for late recalls. In 2013, Ford had to pay a $17.35 million fine for a late recall of Ford Escape SUVs with defective gas pedals. Toyota also paid a heavy fine for delayed reporting of safety issues in vehicles.
General Motors currently holds a Zacks Rank #5 (Strong Sell). A better-ranked automobile stock worth considering is Tesla Motors, Inc. (TSLA - Analyst Report), with a Zacks Rank #2 (Buy).