How Will General Motors Fix This Recall Mess?

New CEO Mary Barra is facing a tough test as charges fly and investigators circle GM.

Mar 15, 2014 at 8:00AM


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.

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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