March 15, 2014 at 1:00 am

Ignition switch recall engulfs GM

The ignition switch was found in the accessory position in a Cobalt crash in 2006 that killed two passengers and seriously hurt the driver. (hoto provided by Hilliard Munoz Gonzales LLP)

One month after General Motors Co. announced a seemingly routine recall for older cars for ignition switch problems, the callback of 1.62 million cars linked to 12 deaths and 31 crashes in which air bags failed to inflate has grown into the biggest crisis the Detroit automaker has faced in years.

GM now faces a criminal investigation, looming hearings in Congress, scrutiny from federal regulators and mounting negative publicity over the question of whether GM recalled the cars in a timely manner. News reports have featured tearful stories of people killed in now-recalled cars. Tuesday, GM staffers are scheduled to brief House Energy and Commerce aides from both political parties on events leading to the recall.

The automaker has apologized for its handling of the recall and hired two outside law firms to investigate the company’s response to ignition switch problems that were spotted as early as 2001 on a preproduction Saturn Ion. Its stock price fell 9.6 percent this week.

Adding to GM’s problems Friday, Transport Canada said it is investigating a June 2013 death that could be linked to the defects. GM has recalled more than 235,000 cars in Canada linked to bad ignition switches that can inadvertently turn off the engine and disable air bags, and also make the car difficult to steer. Also Friday, Texas law firms filed a class-action suit against the company.

Several executives at the Detroit automaker have privately compared the firestorm over its decision to delay recalling 1.62 million Chevrolet Cobalts and other cars to the maelstrom faced by BP over the Gulf of Mexico oil disaster or the manufacturer of Tylenol after the 1982 deaths of seven people who took cyanide-spiked painkillers.

GM likely will face more lawsuits with all the publicity.

Attorney Bob Hilliard said he plans in the next two weeks to file a civil lawsuit against GM on behalf of the estates of Natasha Weigel and Amy Rademaker, and Megan Phillips, who survived a Chevrolet Cobalt crash in St. Croix County, Wis., in 2006. The crash killed passengers Weigel, 18, and Rademaker, 15. Phillips, the driver who is now 24, was seriously hurt.

The Cobalt left the road. It went airborne and hit a telephone box and two trees. Air bags failed to inflate and the car’s ignition switch was found in the accessory position, the law firm says. Speed and alcohol weren’t cited as factors in the crash, according to the law firm. None of the three wore seat belts.

The Texas lawyer, who also is involved in the class-action suit filed Friday, said he believes GM “actively pursued a cover-up for 10 years.”

He said he will look to have GM’s 2009 bankruptcy reopened because he believes the company falsely represented that it did not know of any product liability cases that might be brought against them. Hilliard said he would have to convince a bankruptcy judge that GM understood its liability potential.

Under terms of the bankruptcy agreement, the “new” GM is not liable for accidents occurring before bankruptcy. GM previously has said the company did not assume liability for claims that came from accidents that occurred before July 2009, but it will put the customer first “and that will continue to guide us.”

Buffett: Move quickly

Warren Buffett, the billionaire founder of Berkshire Hathaway and a GM shareholder, said GM had to move quickly. “Get it right, get it fast, get it out, get it over, but get it right first,” he told CNBC on Friday.

Unlike Toyota Motor Corp.’s sudden acceleration-linked recalls in 2009 and 2010, GM took the immediate step of apologizing and emphasized it will hold itself accountable.

Toyota’s woes were compounded by the fact that in January 2010 the company was forced to halt sales of nearly half the models in dealer showrooms because it didn’t have an immediate fix to an accelerator pedal problem. In contrast, GM’s recalled cars no longer are built.

Some Wall Street analysts think the reaction to GM’s crisis is overblown. The automaker’s stock rose nearly 1 percent to $34.09 on Friday, up 30 cents.

Hayman Capital founder Kyle Bass told CNBC on Friday that GM’s stock could trade in the high $40 per share to even $50 a share in the next year to year and a half.

Several Wall Street analysts also said in investment notes this week that the recall and falling stock price this week may represent a good time to buy GM stock. “While recall headlines may linger, we think the market overreaction provides a good buying opportunity,” UBS analyst Colin Langan said in a Thursday investment note, reiterating his “buy” rating.

Chrysler CEO Sergio Marchionne told reporters in Sterling Heights on Friday that he sympathizes with the rival carmaker. “I don’t wish that kind of event on anybody,” he said.

Marchionne said GM CEO Mary Barra’s background in engineering gives her the skills to “be careful and diligent” and get to the bottom of what went wrong and why. “It reminds all of us of the need to be careful and watchful — and I’m not suggesting that they weren’t.”

Chrysler faced its own fight with NHTSA in recent months over a request to recall 2.7 million older Jeep SUVs for fire risks. But Chrysler always insisted the vehicles were safe and met federal requirements. It ultimately agreed to a recall of some vehicles but didn’t agree to the more extensive fix the government initially sought.

Crisis could be managable

Gene Grabowski, a senior strategist and crisis management expert for the Washington-based Levick public relations firm, said in an interview Friday that we don’t yet know the magnitude of GM’s crisis. It will be measured on how it is handled, not the issue itself, he said.

“If GM continues to act responsibly, make its customers whole and Mary Barra the CEO plays a strong leadership role and demonstrates both sympathy and strength, this could be a very manageable crisis,” he said.

Grabowski said GM appears to have taken the right steps so far in the heightened recall, as the nation watches how Barra and her leadership team handle what he called “sins of the past.”

Barra, the first woman to lead an automaker, is being scrutinized by Wall Street, GM owners and the public who might be thinking of buying a car.

“A lot is riding on her shoulders …,” Grabowski said. “But if she comes through this credibly and acts forthrightly and in a way consumers find credible and trustworthy, then GM will benefit from this crisis.”

dshepardson@detroitnews.com
Detroit News Staff Writer Bryce G. Hoffman contributed.

Natasha Weigel, 18, left, and Amy Rademaker, 15 died in a crash.
Rademaker