DETROIT, MI- The number of General Motors Co. recalls this year is forcing extraordinary change in the company and across the entire U.S. auto industry. But change isn’t necessarily a bad thing.
“What these recalls genuinely or accurately represent is a hard, self-critical analysis on what to do and how they need to fix problems,” said Karl Brauer, Kelley Blue Book senior analyst.
Brauer said the change for the the industry started occurring following Toyota Motor Corp.’s issues involving unintended acceleration in 2009, and now continues with GM.
As of May 15, the Detroit-based automaker had issued 24 safety and non-compliance recalls for nearly 11.2 million in the U.S. They have ranged from the well-publicized ignition switch recall involving 2.6 million older-model small cars to a Thursday announcement of five separate recalls of nearly 2.7 million vehicles domestically from the 2004 through 2015 model years for a variety of reasons.
The change in the industry was crystal clear Friday, when federal officials announced a record $35 million fine and “unprecedented” oversight for GM.
“Together these penalties should put all automakers on notice that there is no excuse and zero tolerance for failing to notify the federal government when a defect puts safety at risk,” said U.S. Transportation Secretary Foxx during a press briefing and teleconference Friday to announce the actions.
Through the National Highway Traffic Safety Administration, the DOT has been investigating the Detroit-based automaker’s delayed recall of 2.6 million older-model small cars due to faulty ignition switches since earlier this year. The defective parts have been linked to at least 13 deaths in more than 30 front-end crashes.
The DOT also is urging Congress to enact the “Grow America Act” which would raise the maximum penalty for not reporting recalls within the five days required by law from $35 million to $300 million.
But even before the announcement, GM and the industry had already taken notice.
Michael Sprague, Kia Motors America executive vice president of sales & marketing, said he believes GM’s recall conundrum has put the entire U.S. automotive industry on alert.
“Every brand, I think, is looking at the processes and the procedures that they have in place,” he told reporters Thursday following a speech at the Automotive Press Association meeting in Detroit. “And of course, we do as well. And we work very closely with the government as soon as an issue starts to come up.”
Sprague’s comments emulate those of Ford Motor Co. Chief Operating Officer Mark Fields and other auto industry executives that don’t want their company to have a similar situation.
Fields, who will became CEO July 1, said the Dearborn-based automaker has a “routine process” to evaluate their products every time any automaker has a recall to evaluate if their vehicles share any of the same parts.
“We’re continually evaluating our processes for improvements, but we are very confident in the current methods that we have to not only identify issues but then quickly address them if there are issues,” he said last month during the 2014 New York International Auto Show.
As part of its first quarter financial results, Ford also disclosed it had upped its “warranty reserve” by $400 million for North America.
The “warranty reserve,” according to Ford, is for “field service actions,” which include recalls that the company may experience. Chief Operating Officer Bob Shanks said Ford follows “a pattern estimation model of accounting,” which means the company looks at the company’s own history, such as a previous launch of a vehicle, in an attempt to determine possible expenses that a new model being introduced may incur.
A Ford spokesman said the increase in the company’s revenue reserve is unrelated to the ongoing recall crisis of GM. But Shanks described the industry’s current recall frenzy as an “industry phenomenon.”
More recalls coming?
Brauer said he expects more companies to examine their recall and inspection processes, which could lead to more recalls.
“We’re seeing so many recalls from every car company, GM and others, because they’ve all realized it’s white noise right now,” he said. “If there’s any recalls brewing in the short- to medium-term, do them now because there’s so much noise right now about recalls in the headlines … no consumer even cares right now.”
Carfax, a paid web service providing vehicle history information, reports that a third of automobiles recalled for safety defects are never repaired, and last year 3.5 million recalled cars and light trucks were offered for sale online.
Although many consumers may not be taking notice of the recalls now, Brauer the amount of recalls and impact on current customers could have a detrimental impact on an automaker in the long-term. If a consumer has to take their vehicle back to the dealership numerous times, it becomes a hassle. Also, if a customer has a less than flattering experience at a dealership, that may sway their decision to leave the brand.
NHTSA, when contacted by MLive, did not have a detailed list of how many vehicles have been involved in recalls in 2014. Last year, more than 21.9 million vehicles were involved in recalls.
According to NBC News, 20 million vehicles have been recalled so far this year in the U.S., which is on track to break the all-time recall record of nearly 31 million set a decade ago.
The amount of recalls – particularly related to GM – is also garnering arguably as much attention as the Detroit-based automaker’s government-backed bankruptcy in 2009.
The ignition switch recall also has opened the public officials’ eyes to NHTSA itself, which failed to catch the problem or open an official investigation into the vehicles even after numerous fatal accidents occurred without the airbag inflating.
Everyone from late night comedy hosts to Fox News and CNBC have scrutinized GM for not only its delay in recalling the vehicles, but its handling of the entire incident.
The most recent reports came over the weekend, as CNBC aired a special one-hour report called “Failure to Recall: Investigating GM” and “Last Week Tonight With John Oliver” took roughly a third of the show to condemn the automaker.
“Our main story this week concerns a titan of American industry, General Motors. Few companies in history have ever sold more cars,” Oliver said. “And, as of this week, few companies have ever demanded as many of them back.”
The segment ended with a fake GM commercial with the tagline, “Why walk through the valley of the shadow of death when you can drive?”
Oliver’s new show shares similarities with The Daily Show, where he was previously featured as a correspondent and fill-in host. He criticized everything from GM’s recall efforts to GM CEO Mary Barra’s handling of the crisis.
The CNBC program offered a more straight-forward look at the recall crisis. The hour-long show chronicled the entire ignition switch recall through interviews with victims, the family of victims and industry experts.
The special also featured CNBC’s Phil LeBeau driving one of the affected vehicles with Jake Fisher, the Director of Auto Testing Consumer Reports.
The faulty ignition switches can move out of the “run” position to the “accessory” or “off” positions, leading to a loss of power. The risk may be increased if the key ring is carrying added weight or if the vehicle goes off road or experiences some jarring event, including rough roads. If the key turns to one of those positions, officials say the front air bags may not work if there’s a crash.
The 2.6 million vehicles, including 2.2 million in the U.S., affected by the ignition switch recall include 2003-2007 Saturn Ions, 2007-2010 Saturn Skys, 2005-2011 Chevrolet HHRs, 2006-2010 Pontiac Solstices, and 2005-10 Chevrolet Cobalt and Pontiac G5 models.
Led by Barra, the company has been proactive in taking steps to change everything from its inspection process of the vehicles to the organization of its global engineering department, which it transformed with new executives and roles in an attempt to ensure a situation like the ignition switch recall doesn’t happen again.
Barra, who became CEO on Jan. 15, has continued to preach transparency of the “new GM” and even condemn the “old GM” for its actions that led to the ignition switch recall that has been linked to at least 13 deaths.
“Today, if there is a safety issue, we take action,” she said during a congressional hearing about the ignition switch recall in April. “We’ve moved from a cost culture to a customer culture.”
Barra, on numerous occasions, has also apologized to victims and their families that have been impacted by the ignition switch recall.
During a conference call last month to discuss GM’s first-quarter earnings, Barra said the company expects recommendations from disaster response expert Kenneth Feinberg regarding its ignition switch recalls in early-June.
“It’s a complex situation as we evaluate both the legal and civic aspects of this, but we are working with him,” she said. “As soon as we have something to share, we will get it out.”
Barra did not elaborate on what GM expects from Feinberg, who is best known for overseeing millions of dollars in compensation in high-profile tragedies, including the Sept. 11, 2001 terrorist attacks and the Boston Marathon bombing.
Other high-profile moves from GM in connection to the ignition switch recall include launching an internal investigation being led by former U.S. attorney Anton Valukas; placing two engineers involved in the switches on paid leave; creating a new vice president of vehicle safety; and a host of other internal and external changes.
Impact on GM
GM executives, when prompted by reporters, have continued to say that the recalls have not impacted the company’s sales. Through April, GM’s sales remained consistent with the same time period a year ago with 903,713 vehicles sold, including a 7 percent increase in April.
“This is the good thing about having strong brands,” Uwe Ellinghaus, Cadillac chief marketing officer, told reporters last month in New York. “They are probably what we should put even more in the foreground of our communication efforts because they are the identification points of prospects and customers and the wider audience.”
However, it’s not the same regarding GM’s bottom line. For the first quarter, the company reported a $1.3 billion charge due to its ongoing recall crisis. GM also announced it expects to take a charge of up to approximately $200 million in the second quarter, primarily for the cost of recall-related repairs announced in the quarter.
GM executives have continued to say that the “new GM” does not put a price tag on customers’ safety.
“Customer safety is at the heart of how GM designs and produces vehicles, and these announcements are examples of two ways we are putting that into practice,” said Jeff Boyer, vice president of GM Global Vehicle Safety, in a statement regarding the newest recall of nearly 3 million vehicles.
Repairs to fix the millions of vehicles connected to the recall are underway. GM has shipped thousands of kits consisting of ignition switches, ignition cylinders and key sets for the older model small cars.
Before the DOT announcement Friday, GM released a new statement, saying it is working with Delphi, which supplied the ignition switches, to accelerate its production plan of the new parts.
“Given that the ignition switch was in very limited production for several years, GM’s supplier, Delphi, increased production, pulled machinery out of storage, and found new suppliers for some of the part components,” wrote Boyer Friday on GM FastLane. “We are buying new machinery and equipment to make parts quickly.”
GM and Delphi are working to get two additional production lines up and running this summer.