How Will General Motors Fix This Recall Mess?

GM CEO Mary Barra is facing her first crisis since taking over from former CEO Dan Akerson, as charges fly around a long-overdue recall. Photo credit: General Motors

Last week was a rough one for General Motors  (NYSE: GM  ) and its new CEO, Mary Barra.

A huge recall announced last month is turning into a big scandal. Evidence has emerged that GM -- at least, some parts of GM -- have known for years about defective ignition switches that are blamed for more than 30 accidents. At least a dozen people have died.

Congressional committees have promised hearings. The U.S. Justice Department is talking about criminal investigations. And everyone is bracing for the rash of lawsuits that is sure to come.

How should Barra handle this? In this video, Motley Fool contributor John Rosevear looks at how GM's current management is confronting this scandal -- and at what Barra, and GM, must do in order to resolve this mess without lasting damage.

A transcript of the video is below.

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John Rosevear: Hey Fools, it's John Rosevear. What should GM do about this recall scandal?

I mean, this is serious stuff. 1.6 million vehicles being recalled for a faulty ignition switch that could cut out on you suddenly while you're driving or worse, turn off the airbags in an accident, 30-odd accidents are blamed on this, a dozen people have died, and evidence that GM has known about the problem for years but didn't do anything until recently. We've got U.S. House and Senate committees planning big hearings, we've got a U.S. Attorney talking about a criminal investigation.

I mean this is quite a test for GM's new CEO Mary Barra. But the good news is that so far she's passing the test, and I think there's some sense in the public perception that this is a matter of GM's new management cleaning up yet another mess left by the old guard.The vehicles that have been recalled so far were all made between 2003 and 2007, before GM's bankruptcy.

And Barra and her team are being very straightforward here. New North America chief Alan Batey wrote a letter of apology that was published in USA Today. GM hired a high-profile attorney to lead an internal investigation and Barra has promised that nothing will be hidden, they'll air whatever they find so that they can deal with it and make the changes necessary so that it doesn't happen again.

Meanwhile, GM dealers have been instructed to offer $500 discounts to anyone who owns a recalled car and wants to buy a new one, and GM has emphasized that this is just about trying to help these people out, dealers are not to use this as a marketing thing.

The stock took a big hit this past week when news of the Justice Department's inquiry broke, but mostly it has held up OK on all this. I think it will continue to hold up OK as long as Barra and her team continue to show that they are doing the right thing here, that they're committed to getting to the bottom of what went wrong and fixing it, and they're committed to taking care of the customers that are affected by this.

The transparency is really really important, even if they uncover something that somebody might think of as a smoking gun, they need to continue to be transparent and up front about it, and I think they will be. I think everybody here is very aware of what happened to Toyota  (NYSE: TM  ) a few years back when they kind of stonewalled investigations and eventually took kind of a public flogging for it, GM can't afford that, and it doesn't seem like Mary Barra's style anyway.

So a very tricky situation for GM, a very sad one in many ways, but so far, Mary Barra and her team seem to be handling it pretty well. Thanks for watching, and Fool on.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 15, 2014, at 9:36 AM, kafantaris wrote:

    Why hang safety entirely on an ignition switch?

    GM and other car companies should delay the time between the ignition switch shut off and the cutoff of power to the steering, the brakes, the airbags and the entire electronic monitoring system.

    Moreover, if the car is moving, power cutoff time should be delayed further to give the driver a chance to safely pull off the road -- or turn the ignition back on.

    Electric powered systems are safe and the way of the future.

    And they don't need to be shut off as soon as the ignition goes off.

    What's the hurry, anyway?

  • Report this Comment On March 16, 2014, at 3:04 PM, AmericanFirst wrote:

    "But the good news is that so far she's passing the test, and I think there's some sense in the public perception that this is a matter of GM's new management cleaning up yet another mess left by the old guard.The vehicles that have been recalled so far were all made between 2003 and 2007, before GM's bankruptcy"

    Sorry, Mary Barra is part of the "new guard" as exiting CEO Akerson, who recently told the U.S. taxpayers to take a hike on the $10.5B loss with the final sale of the gov. held GM Stock.

  • Report this Comment On March 17, 2014, at 12:41 PM, SkepikI wrote:

    ^ Well, this is all "other people's fault" or the old GM, but does it not tell you a LOT about the behavior, ethics and capabilities of those employees who the taxpayers later saved?

    JR, I know you are sort of an advocate for "A deal's a deal" and GM lived up to their end, what hank Paulson (there's a family that has a LOT to answer for) did to the taxpayers is their own lookout.....BUT.

    When there is a periodic drip of bad news, and old business coming back to haunt Government Motors, we really need to be asking the question should we have saved them? Its too late now but not too late for ROUND 2, which I fear "Chrysler like" will come up in the next 10 years.

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