General Motors May Face another Fine for Late Impala Recalls - Analyst Blog


According to media reports, a General Motors Co. ( GM ) employee informed the company by e-mail about the safety problem related to the faulty ignition switch in Chevrolet Impala in 2005 itself. Lawfully, automakers are supposed to alert the National Highway Traffic Safety Administration (NHTSA) about any safety concern in vehicles within five business days of recognizing the problem.  Consequently, the automaker may face another government fine for the late recall.

Last month, General Motors agreed to pay a fine of $35 million to the U.S. safety regulators due to the late recall of 2.6 million older-model small cars associated with 13 front-seat fatalities due to faulty ignition switches. This is the maximum amount of fine which the government can impose. However, it only constitutes one day's revenue of General Motors based its first-quarter 2014 sales.

According to the email dated Aug 30, 2005, a General Motors employee's 2006 Chevrolet Impala got stuck on the Interstate 75 near Detroit after hitting a bump. To avoid a crash, the vehicle behind the Impala had to take a sharp turn. A General Motors mechanic had identified the cause to be a faulty ignition switch. After recognizing the defect, the vehicle owner had e-mailed 11 colleagues about the issue, which she believed would lead to a big recall.

Moreover, the NHTSA's web site contains more than 100 complaints about sudden halting of the 2006-2009 Impalas. However, General Motors did not comment on the possibility of another fine.

This issue was raised during the meeting held between General Motors' CEO Mary Barra and the U.S. Congress on Jun 18 while discussing the delayed recall of the 2.6 million vehicles with defective ignition switches.

After almost a decade of recognizing the defect, on Jun 16, 2014, the automaker announced that it is recalling 3.16 million vehicles of model years 2000 to 2014 from the U.S. to fix faulty ignition switches. The recalled vehicles include Buick Lacrosse of model years 2005-2009, Chevrolet Impala of model years 2006-2014, Cadillac Deville of model years 2000-2005, Cadillac DTS of model years 2007-2011, Buick Lucerne of model years 2006-2011, Buick Regal LS & GS of model year 2005, Chevy Monte Carlo of model years 2006-2008. The total recall, including vehicles in the U.S., Canada, Mexico and exports, covers 3,360,555 vehicles.

According to General Motors, a heavy key ring or uneven roads can cause the ignition switch to shift away from the run position, thus affecting the power steering and power braking. In such a situation, air bags will not be deployed in case of a crash.

Earlier, automakers like Ford Motor Co. ( F ) and Toyota Motor Corp. ( TM ) have also been fined for late recalls. In 2013, Ford had to pay a $17.4 million penalty for the late recall of Ford Escape SUVs with defective gas pedals. Toyota also paid a lump sum fine of $66 million for delayed reporting of safety issues in its vehicles.

General Motors currently holds a Zacks Rank #3 (Hold). Fox Factory Holding Corp ( FOXF ) with a Zacks Rank #1 (Strong Buy) is a better-ranked automobile 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, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: F , TM , GM , FOXF

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