Issue of the week: GM’s recall disaster

The honeymoon is over for General Motors’ new chief executive, said Ben Klayman in Reuters.com. Mary Barra is facing “her first big test” since she took over as GM’s new CEO in January: a recall of more than 1.6 million vehicles linked to 31 crashes and 13 deaths since 2004. Recalls are not unusual, but given the number of fatalities over the past decade, this one could “cost the company hundreds of millions of dollars in fines and possible legal damages, in addition to tarnishing its reputation.” The issue is that in certain models, “weight on the key ring, road conditions, or some other jarring event may cause the ignition switch to move out of the ‘run’ position,” disabling the engine, power steering and brakes, and airbags. Barra has promised an “unvarnished” look at the matter and recruited a high-profile lawyer to head the firm’s internal probe.

Too little, too late, said Joseph B. White in The Wall Street Journal. As federal regulators step into the fray and the Department of Justice launches a criminal investigation, it’s becoming clear that GM is “a company burdened by bureaucratic complexity and unable to decisively address a defect putting lives at risk.” Barra’s challenge is to fix not just the cars, but also “the underlying management problems.” GM’s Japanese rival, Toyota Motor Corp., “took a beating in the media and from regulators, who ultimately fined it $48.8 million” for dragging its heels in a 2010 recall. The company had to shell out another $1.1 billion to settle a class-action lawsuit and may have to pay a further $1 billion “to settle a federal criminal probe related to the issue.”

At least GM is taking responsibility, said John Rosevear in Fool.com. While this safety defect is “a doozy,” the company’s leadership “is finally stepping up and owning this,” releasing a chronology that shows it first learned of the potential problem in 2004 and apologizing for its slow response. That alone could land GM in “legal hot water,” but it shows the firm is “a very different company now than it was” before it went through bankruptcy and a total change of leadership.

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But GM may not have been alone in dropping this ball, said Jeff Plungis and Jeff Green in Bloomberg.com. The National Highway Traffic Safety Administration may come under fire, too. The House Energy and Commerce Committee is now looking into whether the automaker or the NHTSA should have acted much sooner. As the committee chairman, Rep. Fred Upton (R-Mich.), said, “significant questions need to be answered.”