GM is recalling more than 50,000 Chevy Volts after two people were injured by carbon monoxide fumes. Source: General Motors Co.
General Motors (GM +0.59%) said late last week that it was recalling 50,249 Chevrolet Volts made between 2011 and 2013 because of a scary-sounding problem: Carbon monoxide buildup. Coming on top of last year's record wave of GM recalls, that sounds like something that could be a disaster. Is it?
This defect isn't quite as bad as it sounds
The good news is that, while two people have been injured as a result of the Volt's problem, according to GM, there have been no deaths. And really, the "defect" is more one of owner carelessness -- but it's one that GM is able to modify the Volt to address. Specifically, there have been a few cases in which owners have driven their Volt into a garage and walked away without remembering to turn the car off.
Why would an owner forget to turn the car off? Remember that the Volt is essentially a plug-in hybrid: Sometimes, it runs on battery power, and sometimes, it uses its gasoline-powered "range extender" engine to generate electricity.
The problem arises when an owner drives home on battery power and walks away without switching the car to "off." That's an understandable error given that the gas engine isn't running, and the Volt has no ignition key that needs to be removed.
But as the car sits with its systems still switched on, the battery drains -- and eventually, the gasoline engine will switch on automatically, to recharge the battery. If the car is sitting unattended in a closed garage when that happens, carbon monoxide can build up in the confined space.
That's dangerous, of course, and GM did say that two people have been injured. GM will fix the problem by installing a software update that automatically shuts the car off after it sits for 90 minutes. (Model year 2014 and newer Volts already have this update.)
To make a long story short, while it's a serious situation whenever anyone is injured, this really is -- as these things go -- not a huge deal. The problem is easy and inexpensive for GM to fix, and it's stepping up to do the right thing.
But of course, this is General Motors -- which means that any recall is now a big deal.
GM can't afford any more recall drama
The elephant in the room is that GM's North America unit issued 84 separate recalls covering a whopping 30,433,365 vehicles last year. These occurred after CEO Mary Barra ordered a thorough review of safety issues following allegations that GM had delayed recalling a defective ignition switch for years.
Despite predictions that the recall scandals would hammer GM's U.S. sales, the company did pretty well last year. GM's U.S. sales rose 4.8% in 2014, and profits in GM's North America business unit would have been very strong if not for the costs of the recalls.
But those costs added up to almost $3 billion, putting a significant dent in GM's 2014 bottom line. And there could be more to come: Ongoing state and federal investigations are likely to produce criminal charges, and it's likely that GM will have to fork over a substantial amount of cash to settle those charges.
How substantial? Toyota paid $1.2 billion to settle similar claims last year. Depending on how the cases against GM unfold, it may need to pay $2 billion or more to settle.
GM could end up paying billions more to settle civil litigation related to the ignition-switch defect. A settlement fund established by GM to compensate victims of the defect has so far approved 67 death claims, but some victims or their families have chosen to litigate their claims instead.
The company had $25.2 billion in cash reserves as of the end of 2014, so these settlements are unlikely to drive GM out of business, or even leave it in a precarious position. But any cash paid out to settle claims or charges is cash that GM can't use to develop new products or technologies, and that will have an impact on the business over time.
GM still isn't done paying for last year's mess
This latest Volt recall is unlikely to do much damage to GM's earnings or reputation. The two injuries do make it fairly serious. But assuming that those folks recover without incident, this will be quickly forgotten.
In the bigger picture, however, there's still another shoe or two yet to drop in last year's recall scandal. The costs to settle civil litigation and possible criminal charges could total several billion dollars.
So far, the worst parts of the recall drama are clearly associated with Old GM, pre-bankruptcy GM. As long as that doesn't change, the impact on New GM's reputation -- and its business -- shouldn't be too severe.
