VIDEO: GM CEO apologizes in video for ignition-switch recall

Published on Tuesday, 18 March 2014 09:47 - Written by

DETROIT (MCT) — General Motors Co. CEO Mary Barra apologized again Monday for the automaker’s handling of a recall of 1.6 million cars with potentially defective ignition switches, adding that a supplier has increased production so replacement parts can be shipped to dealers soon.

“Something went wrong with our process in this instance and terrible things happened,” Barra said in a video the automaker posted on its website. “As a member of the GM family and as a mom with a family of my own, this really hits home for me. And we have apologized. But that is just one step in the journey to resolve this.”

Barra said Delphi Corp., the supplier of the ignition switches, is adding a second production line to get the replacement parts to dealers sooner, but dealers won’t be able to begin installing the new ignitions until the second week of April.

GM initially recalled Chevrolet Cobalts and Pontiac G5s from model years 2005-2007. But the automaker expanded the recall to include 2003-2007 Saturn Ions, 2006-2007 Chevrolet HHRs, and 2006-2007 Pontiac Solstice and Saturn Sky models.

The automaker said it will take a $300 million charge against its first-quarter earnings to reflect the cost of the ignition switch recall and three new safety recalls announced Monday.

Meanwhile, investors and crisis management experts began assessing the impact on GM’s finances, market share and reputation from the ignition issue.

So far, GM has reported 12 deaths and 31 crashes that may be tied to the problem. The risk arises when the ignition switch falls out of the original position, cutting off to power steering and other electrical systems, including the sensors that determine if and when the air bags deploy.

At least four investigations are underway and a number of lawsuits have now been filed. At least one is challenging GM’s immunity from product liability in crashes that occurred before July 2009, when the company came out of Chapter 11 bankruptcy.

Rep. Fred Upton, R-Mich., chairman of the House Energy and Commerce Committee, will oversee one congressional hearing on GM’s response to the crisis.

“When it comes to automobiles, ensuring product safety is literally a life or death matter. Restoring the public’s confidence that the cars on the road are safe should be the company’s top priority,” Upton said in a statement released Monday. “We are seeking answers and documents from both GM and NHTSA to better understand the recalls, the extent of the problems, and the decisions made. It should not have taken so long for all parties involved to connect the dots.”

Ira Kalb, a professor of communications at the University of Southern California, said GM is following the right process to handle the crisis, but could deliver its message better.

In her video on Monday, Barra admitted that the company made mistakes, apologized and explained how the company would fix the problem.

“It was pretty good, but she made a couple of mistakes,” said Kalb, who watched the video. “She said ‘terrible things happened,” and I don’t think she should have used that kind of language. She also repeated herself. This could have been a lot shorter and punchier.”

Matt Friedman, partner with Tanner Friedman in Farmington Hills, Mich., said Barra’s video will help GM connect with consumers even though it felt overly scripted.

“I think what’s been missing has been face time with the public. What I saw today, with the posting of the employee video, seems to me to be a compromise between the public relations staff and the lawyers,” Friedman said. “It appears to me that there was some back-room wrangling.”

Citi Investor Research analyst Itay Michaeli, who has a “buy” recommendation on GM shares, wrote in a note to clients that “most recalls do not appear to harm automaker share and pricing — with the one exception being the 2009-10 Toyota sudden-acceleration recall, which arguably cost Toyota almost 1 point of share” and $48.8 million in fines levied by the NHTSA for failing to report incidents to the regulators in a timely fashion.

Later, a study conducted by the National Aeronautics and Space Administration and reviewed by the National Academy of Sciences in 2012 dismissed electronics problems as a likely cause for unintended acceleration in Toyota vehicles.

In the following two years, Toyota recovered most of its lost market share in the U.S. and its profits rose sharply. Some of that performance was tied to Toyota’s recovery from the March 2011 Japanese earthquake and tsunami that disrupted production in Japan and North America. Some of it reflected customer loyalty.

Michaeli acknowledged differences between the GM and Toyota recalls.

“Right or wrong, the Toyota recall has become the ‘comp’ to which investors are assessing the GM events as they unfold,’” he wrote.

Toyota’s stock price took an initial hit when the recall started in late 2009 but then stabilized and recovered. Initially, market share and transaction prices held up as loyal buyers were largely undeterred by the news.

“The Toyota events suggest that market share losses only commenced when the initial recall expanded to the point of forcing production cuts,” Michaeli wrote, and GM does not face that problem because new vehicles do not have the faulty ignition switch at issue in the recall.

Citi analysts expect GM’s share price to bounce back when the recall settles down, and they forecast it eventually will reach $48. GM stock closed at $34.63 Monday, up 1.6 percent from Friday’s close.