When Will GM's Recall Mess End?

GM has recalled over 13 million vehicles so far in 2014, and it's only May.

May 25, 2014 at 6:15PM


GM recalled another 2.42 million vehicles on Tuesday, including over 1,000 brand-new 2015 Cadillac Escalades. Source: General Motors.

General Motors (NYSE:GM) on Tuesday said it is recalling about 2.4 million additional vehicles in four separate recalls for a variety of problems, including faulty seat belts and gearshift troubles.

This announcement came on the heels of another set of GM recalls, announced last Thursday, covering 2.7 million vehicles. Including the four recalls announced on Tuesday, GM has issued a total of 30 recalls in the U.S. so far in 2014, encompassing about 13.8 million vehicles. 

That's a stupendous number. 

Recalls are part of doing business for any automaker, but not in this quantity. Between 2009 and 2013, GM recalled an average of about 1.8 million vehicles a year. 

What's the deal?

Recall after recall while the whole world watches
Of course, this isn't an ordinary year for General Motors. Since GM in February announced a long-delayed recall of vehicles with defective ignition switches blamed for at least 13 deaths, its safety procedures have been under intense scrutiny.

Barra Before Senate

GM CEO Mary Barra appeared before the U.S. Senate Commerce Science and Transportation Subcommittee in April to address the recall scandal. She spent hours answering harsh questions. Source: General Motors.

That scrutiny has included harsh congressional inquiries, class action lawsuits, and a $35 million dollar fine to settle a federal safety investigation -- and there's almost certainly more trouble to come.

Mary Barra was promoted General Motors CEO in January, to great fanfare -- but quickly became immersed in this growing scandal. She has been learning as she goes, but appears to have gotten some good advice, including this: If there's any chance there's another problem lurking deep inside General Motors, get it out now.

So GM's recall machinery has swung into overdrive. That machinery, recently enhanced by the appointment of senior engineer Jeff Boyer as GM's first-ever vice president of global vehicle safety, has been cranking out recall after recall for several weeks now.

So far, the repercussions from the recall drama don't appear to have hurt GM's sales. But the costs of the recalls have hurt the company's profit, to the tune of $1.3 billion last quarter -- and GM warned on Tuesday that it expects to take another charge of up to $400 million on its second-quarter earnings.

When does it end?

A damage-control plan with an uncertain end
When it comes to lessons, Barra and GM have learned this from Toyota's (NYSE:TM) recall mess a few years ago: The sooner you deal with it, the sooner you can recover.

GM may have been inexcusably slow to face up to the problem, but the pace of activity has greatly accelerated recently. Barra and her team of crisis advisors have taken a lot of action in recent weeks, with more expected to follow.

The automaker didn't engage in a long battle with the National Highway Traffic Safety Administration; it took its lumps and agreed to pay the stiffest fine allowed by current law. (More significantly, it agreed to NHTSA oversight of its internal safety review processes.)

GM is known to be exploring the idea of a big settlement with victims of the ignition-switch defect, led by Kenneth Feinberg, the attorney who managed settlement funds for victims of the Sept. 11 terrorist attacks and the Boston Marathon bombings. It's also conducting a massive internal investigation, led by former U.S. Attorney Anton Valukas, that -- it hopes -- will explain Exactly What Went Wrong.

And apparently, it's recalling everything that might possibly look even a little bit like a defect -- an effort that might continue well into the summer, say analysts.

So to answer the question, it's impossible to say when this all will end. Barra is doing her best to make it end sooner rather than later, but it might be months before this scandal starts to fade from the headlines.

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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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Jun 12, 2015 at 5:01PM

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