GM recalls 1.7M more vehicles, takes $300M charge

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Washington — General Motors Co. CEO Mary Barra said Monday the automaker will revamp its system for overseeing safety recalls, as the Detroit automaker announced Monday it is recalling more than 1.7 million additional vehicles worldwide in three new campaigns. GM will take a $300 million charge against first-quarter earnings to make the fixes for all the recalls.

GM said a review by Barra helped speed up the recall of newer SUVs, vans and the Cadillac XTS as it offered its first estimate of the cost of repairing faulty ignitions switches in its recall of 1.62 million older Cobalts, Ions and other cars linked to 12 deaths and 31 crashes in which the problem apparently caused air bags not to inflate.

“Something went wrong with our process in this instance and terrible things happened,” Barra said in a four-minute video message to employees that was released by GM on Monday.

GM is facing investigations from Congress, the Justice Department and the National Highway Traffic Safety Administration after documents surfaced that the automaker knew of problems with its ignition system as early as 2001. By 2005, GM bought back at least 13 cars and opted to send guidance to dealers on how to fix problems rather than issue a recall.

After weeks of negative of publicity and few answers from GM in the face of the automaker’s biggest crisis in years, Barra’s comments were her first outside of written press releases. The automaker is trying to emphasize it has learned lessons from the recall and made significant changes as a result.

Barra, who became CEO in January, said the automaker’s system for “deciding and managing recalls is going to change because of this, and we’re using this opportunity to change much more about our business.”

“I asked our team to redouble our efforts on our pending product reviews, bring them forward and resolve them quickly. That is what today’s GM is all about,” Barra said. “Today’s announcement underscores the focus we’re putting on the safety and peace of mind of our customers. We are conducting an intense review of our internal processes and will have more developments to announce as we move forward.”

She said GM’s supplier, Delphi Corp., was adding a second production line to double the number ignition switch parts for recall repairs. She said the automaker had more than 50 employees at its Warren call center answering questions from owners.

Barra also more changes after the completion of an intense review of its processes. A person briefed on the matter said GM plans to create a new position in its handling of safety recalls, among other changes.

Barclays auto analyst Brian Johnson said GM could lose some some market share with the new recalls. But he said the GM statement “offers a silver lining that the new management team is proactively trying to address the issues.”

GM stock rose 1.6 percent Monday to $34.63. Some Wall Street analysts think the total cost to GM will be less than some have forecast.

Barra will face questions about when she had any knowledge of the safety issue earlier in her career. Last week, Rep. Fred Upton, R-St. Joseph, who chairs the House Energy and Commerce Committee, questioned if Barra knew of the ignition switch recall when she met with Michigan members of Congress just two days before it was decided. Automotive News editor-in-chief Keith Crain called in an opinion piece for Barra to recuse herself from the investigation that’s being led by a former U.S. attorney in Chicago and assisted by GM’s in-house lawyers and another outside firm.

GM is set to brief House Energy and Commerce Committee staffers today. One of three recalls — of heavy-duty GM vans — will impact production but GM is not being specific.

Subhead

GM said Monday it is recalling 1.3 million SUVs worldwide — including 1.18 million in the United States — to repair wire harnesses for seat-mounted side air bags. GM is calling back some 2008-09 and all 2010-13 Buick Enclaves and GMC Acadias; some 2009 and all 2010-13 Chevrolet Traverse models; and some 2008-09 and all 2010 Saturn Outlooks.

GM said that ignoring the air bag warning light will eventually result in the non-deployment air bags and seat belt pre-tensioners. Dealers will remove wiring harness connectors and splice and solder the wires together.

GM also is recalling 354,000 2009-14 Chevrolet Expresses and GMC Savanas to get new instrument panel material, including 303,000 vans in the United States. The current material is too hard. GM is stopping sale of new vans on dealer lots.

GM also is recalling 66,200 2013-14 Cadillac XTS cars to prevent possible brake booster corrosion that may result in overheating or a fire. GM said it knows of two minor engine compartment fires in unsold vehicles at dealerships and two cases of melted components.

GM said no crashes or injuries have been reported in the three new recalls.

Several Wall Street analysts have pegged the cost to fix the faulty ignition switches at $100 million or less. GM spokesman Jim Cain said Monday that GM is not breaking out the recall costs, but said the figure would include costs such as the loaner cars it is making available to concerned drivers in the 1.62 million ignition switch recall.

The $300 million charge for GM likely will push its first-quarter earnings down even lower than what already was expected to be a tough quarter for the Detroit automaker. RBC Capital Markets LLC analyst Joe Spak said in a research note Monday that the $300 million charge for recalls would cost about ,10 cents a share of profit for GM in the first quarter. If the company were to lose 1 percentage point of market share this year due to the recall, it would bring down GM’s 2014 earnings by about 35 cents a share or 10 percent of the company’s earnings per share estimate for 2014.

GM’s handling of the new recalls is in stark contrast to the ignition switch recall. In that case, it decided to recall 780,000 vehicles on Jan. 31 but made no public disclosure of the recall until it landed on NHTSA’s website on Feb. 13, even though GM’s recall notice said drivers should immediately stop using key chains. It wasn’t until later that month that GM decided to recall all vehicles with the problematic part.

Courtesy of The Detroit News

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