GM Probed in Delay Over Ignition Defect Linked to 13 Deaths (1)

U.S. regulators are investigating
why General Motors Co. (GM:US) took years to recall 1.6 million cars
over an ignition-switch defect linked to 13 deaths in crashes.

The National Highway Traffic Safety Administration
announced the probe yesterday in an e-mailed statement. The
agency could fine GM as much as $35 million, which would be the
most ever by the agency, if it finds the largest U.S. automaker
failed to pursue a recall when it knew the cars were defective.

GM said it was “deeply sorry,” as it more than doubled on
Feb. 25 the number of cars it will fix and expanded the number
of models affected to seven from two.

“It is a major event for General Motors to apologize,”
said Clarence Ditlow, executive director of the Center for Auto
Safety, a Washington-based advocacy group that pushed for the
expanded recall. “NHTSA will still want its penalty. They’ll
want to send a message to the other automakers to toe the line
better.”

GM’s Opel unit in Europe today recalled 2,300 2007 GTs,
adding an eighth model. The U.S. models are the 2005-2007
Chevrolet Cobalt, 2007 Pontiac G5, 2003-2007 Saturn Ion,
2006-2007 Chevrolet HHR, 2006-2007 Pontiac Solstice and 2007
Saturn Sky. The other model is the 2005-06 Pontiac Pursuit sold
in Canada.

Previous Fines

The Detroit-based automaker, like other car companies, has
a legal obligation to act on and report safety-related defects
in a timely manner. Congress last year increased the maximum
fines NHTSA can impose to $35 million to hold automakers more
accountable after Toyota Motor Corp. (7203)’s recalls in 2010 due to
sudden and unintended acceleration in some models.

Toyota and Ford Motor Co. (F:US) have paid the largest fines of
more than $17 million for delaying recalls.

In the GM recall, the company said key rings that are too
heavy or jarring can cause ignition switches to slip out of the
run position, causing the engines to shut off and a crash-sensing algorithm to misfire in a way that deactivates air bags.

GM first identified a potential safety issue involving a
loss of engine power from a key moving out of position in 2004,
according to a timeline the company supplied to NHTSA on Feb.
25. The chronology outlines events that happened between
receiving the first field reports and issuing a recall.

Proposed Redesign

GM engineers proposed a redesign of the configuration of
the switch opening in 2005 that the company chose not to
implement, according to the timetable. Instead, GM fixed the
ignition switches under a service bulletin to dealers that was
issued in 2005 and updated in 2006.

A step short of a recall, the service bulletin advised
dealers to tell customers to remove unessential items from their
key chains and add an insert to prevent ignition keys from
moving up and down. The company said 474 cars — out of 1.6
million — were fixed as part of the effort.

NHTSA officials asked GM in March 2007 about Cobalt
ignition switches after discovering a fatal crash linked to air
bag failure, which led to an internal company investigation.
Part of the current agency inquiry may be why the company didn’t
follow up with a recall at the time.

Air Bags

A month later, NHTSA received a detailed crash
investigation of a similar crash in which air bags didn’t
deploy. Researchers cited evidence that the ignition switch was
in the accessory position when it struck a clump of trees.

The research report cited GM’s 2005-2006 service bulletin
about losses of power and found six similar complaints in agency
databases. The report stopped short of concluding there was a
defect, and the agency didn’t follow up with a defect
investigation.

“The chronology shows that the process employed to examine
this phenomenon was not as robust as it should have been,” GM’s
North America president, Alan Batey, said in a Feb. 25
statement. “Today’s GM is committed to doing business
differently and better. We will take an unflinching look at what
happened and apply lessons learned here to improve going
forward.”

The agency considers the frequency of the incidents, the
number of cars covered by the recall and the severity of
injuries in determining how much to penalize a manufacturer,
said David Strickland, NHTSA’s former administrator.

“They look at the egregiousness of the facts, whether a
manufacturer knew or should have known,” said Strickland, who
left the agency in January and is now an attorney for Venable
LLP in Washington.

Lawmaker’s Request

GM’s delay in telling NHTSA what it found in internal
investigations shows that the reporting system set up in 2000
after a Bridgestone Corp. (5108) recall involving 6.5 million Firestone
tires isn’t working, U.S. Senator Edward Markey said in a letter
to the agency.

The Massachusetts Democrat asked NHTSA to release documents
GM provided about fatal crashes in Maryland and Wisconsin, as
well as information about how regulators evaluated the defect
after they became aware of it.

“The current Early Warning Reporting system is too little,
too late,” Markey said in a statement. “Making more
information public can help prevent accidents and deadly
crashes.”

NHTSA is urging owners and drivers of the affected cars to
use only the ignition key while operating their vehicles, and to
take them in for the free repair as soon as it’s available, said
an agency spokesman, Nathan Naylor.

“NHTSA will monitor consumer outreach as the recall
process continues and will take appropriate action as
warranted,” Naylor said.

Consumer Attention

The size of the recall and link to fatalities may get the
attention of consumers who ordinarily tune out recalls, said
Jessica Caldwell, a senior analyst at Edmunds.com.

Toyota’s sudden-acceleration recalls resulted in a loss of
showroom traffic for a few months, Caldwell said. When the
automaker offered incentives, consumer interest quickly went
back to normal, she said.

“It can resonate with consumers, but it’s short-term,”
Caldwell said of recalls.

GM may be in a stronger position than Toyota to recover,
said Arthur Henry, a senior analyst with Kelley Blue Book in
Irvine, California. The company has reorganized itself and its
top management since its 2009 bankruptcy.

“You have an old GM, and you have a new GM,” Henry said.
“The majority of the models being recalled have been
discontinued. The product they’re offering with the new GM is
going to be different.”

To contact the reporter on this story:
Jeff Plungis in Washington at
jplungis@bloomberg.net

To contact the editor responsible for this story:
Bernard Kohn at
bkohn2@bloomberg.net