General Motors Guilty of Late Ion Recall - Analyst Blog

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Recently, General Motors Co. ( GM ) has been facing difficult times due to delay in recalling vehicles with faulty ignition switches. Now it is facing media scrutiny since it excluded the 2004 Saturn Ion from its recall on Feb 13 despite being aware of four fatalities in the car. Saturn Ions, along with many other GM vehicles, were found to have faulty ignition switches which may lead to abrupt engine shutdown, leading to near-fatal crashes.

General Motors recalled Saturn Ion two weeks later than the Feb 13 recall, after an enquiry detected four crashes associated with the Ions. The automaker was aware of the incidents since they occurred.

The chronology of events filed with the National Highway Traffic Safety Administration (NHTSA) also indicates that the faulty ignition switches were identified way back in 2001 during the pre-production test of the Ions. However, the company assumed that a change in design resolved the problem.

On Feb 13, General Motors announced the recall of 778,562 Chevrolet Cobalt and Pontiac G5 compact cars of model years 2005 to 2007 in North America to fix the faulty ignition switches. A heavy key ring or undulating roads can cause the ignition switch to shift away from the run position, thus turning off the engine. In such a situation, the front air bags will not be deployed in case of a crash.

Later, on Feb 25, 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 on Feb 13, 2014. With this, the company recalled 1,367,146 vehicles in total.

Two congressional committees and the Justice Department will examine the reason behind the delayed recall. The NHTSA also announced an investigation into General Motors delayed recall of 1.6 million older-model small cars. Moreover, General Motors has hired a team to probe into the ignition switch recall.

General Motors notified that dealers will replace the ignition switch to prevent the involuntary key movement. The customers have been advised to use only the ignition key without anything else on the key ring. Moreover, customers should use their safety belts.

General Motors also announced to offer free loaner cars and $500 for a new vehicle to the owners of compact cars recalled for the ignition switch defect. The owners will be able to use the loaner cars until the availability of parts to replace the faulty switches, which is expected to be by April 7. The $500 cash allowance offer is valid till April 30.

General Motors currently holds a Zacks Rank #5 (Strong Sell).

Better-ranked automobile stocks worth considering are Tata Motors Ltd. ( TTM ), Daimler AG ( DDAIF ) and Tesla Motors, Inc. ( TSLA ). Tata and Daimler sport a Zacks Rank #1 (Strong Buy) while Tesla is Zacks Rank #2 (Buy) stock.



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: DDAIF , GM , TSLA , TTM

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