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GM facing billions payout for crashes

2014-03-12 08:56

MAJOR CHALLENGE AT THE HELM: General Motors' new CEO, Mary Barra, will face two major investigations into the automaker's delayed recall of 1.6-million vehicles. Image: AFP

NEW YORK, USA - General Motors is facing questions over why it took nearly a decade to recall 1.6-million cars sold in the USA that have been tied to 13 deaths.

The world's No.3 automaker is facing two official investigations, one from the US government's National Highway Traffic and Safety Administration and a second from a congressional committee, asking why both GM and the NHTSA were “slow” to act despite receiving hundreds of complaints.

Republican congressman Fred Upton said the House Energy and Commerce Committee would hold hearings in coming weeks.

SLOW TO RECALL CARS

Upton noted that he pushed through legislation in 2000 intended to make sure automakers reported and acted on defects before they became an ongoing problem.

Upton added: "Yet here we are, more than a decade later, faced with crashes, tragedies and significant questions need to be answered."

That was bad news for GM. Its share price tumbled 5.2% to $35.18 on Tuesday (March 11).

GM employees already knew in 2004 and 2005 of ignition problems in the Chevrolet Cobalt, according to an official chronology from investigators, which has been read by AFP.

Drivers said the ignition turned off while they were driving, shutting down electrical systems, including the airbags, as shown in a number of crashes. More reports came in over the years, some linking to fatal crashes in which the airbags did not deploy. Action was taken in February 2014.

RECALL EXPANDED

At first GM announced a recall involving 780 000 units in the US, Canada and Mexico, saying the ignition could be jarred from "run" position to "accessory" or "off", especially if the vehicle was off-road or the key ring was particularly heavy.

GM said it knew of 22 crashes involving frontal impacts involving six deaths in which the front airbags did not deploy.

The automaker added that all the fatal crashes "occurred off-road and at high speed, where the probability of serious or fatal injury was high regardless of airbag deployment".

Nearly two weeks later GM expanded the recall to 1.6-million cars, saying it had recorded 31 crashes in which the defect may have stopped the airbags from deploying and 13 deaths.

The list of cars was expanded to six models manufactured from 2003-07:
Chevrolet Cobalt
Chevrolet HHR
Pontiac G5
Pontiac Pursuit
Pontiac Solstice
Saturn Ion
Saturn Sky

GM North America president Alan Batey admitted that the initial investigation was "not as robust as it should have been, we are deeply sorry and we are working to address this issue as quickly as we can".

The recall is the first major crisis for new chief executive Mary Barra, who took the company’s helm on January 15 2014, the first woman to lead a major automaker. In March 2014 she announced an internal review into why the GM had been slow to act, promising an "unvarnished" report.

The review will be led by lawyer Anton Valukas, who earlier led an examination of the collapse of Lehman Brothers.

'WE'LL HOLD OURSELVES ACCOUNTABLE'

Barra said: "I deeply regret the circumstances that brought us to this point. We will hold ourselves accountable and improve our processes so our customers do not experience this again."

Barra's transparency recognises the damages the company faces. In 2009/10 Toyota was forced to recall 12-million vehicles globally at a cost equivalent to R26-billion.

Toyota’s executives were called to appear in congressional hearings, where they were denounced for allegedly hiding and downplaying dangerous defects in some of its popular models.

GM faces small official fines - a possible R380-million, minute compared to R1.6-trillion in revenues in 2013.

Analyst Douglas McIntyre said ultimately GM's recall "could prove to be one of the most costly in automotive history, well into the billions of dollars".

"The legal liability triggered by what could be thousands of personal injury lawsuits may be just as damaging to the reputation of GM's important brands."

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