GM expands recall, suspends two engineers, takes $1.3-billion charge
General Motors announced Thursday it will take a $1.3-billion write-down to cover the cost of repairs related to faulty ignition switch recalls, and placed two engineers at the center of the recall scandal on paid leave.
The company also said it will replace a second part in the affected cars.
GM Chief Executive Mary Barra confirmed Thursday that engineers Ray DeGiorgio and Gary Altman were put on leave following a briefing from Anton Valukas, the former U.S. attorney overseeing an independent investigation into circumstances leading to a safety recall of 2.6 million GM cars because of a faulty ignition switch.
“This is an interim step as we seek the truth about what happened,” Barra said Thursday. “It was a difficult decision, but I believe it is best for GM.”
The defect causes vehicles to shut off, disabling the air bags and other key functions, and has been linked to 13 deaths. GM has known about the problem for more than a decade but did not recall the cars until earlier this year.
The auto company had already set aside $750 million to fix the cars with the bad switch, to provide owners loaner vehicles when requested, and to repair about 3.5 million other vehicles recalled this year for other problems.
Now GM said it will take a $1.3-billion charge against its first quarter earnings to cover those expenses.
GM also has told the National Highway Traffic Safety Administration that it will replace the ignition lock cylinders in the 2.2 million cars recalled for the ignition switch issue in the United States. It will also recall the other 400,000 cars sold in foreign markets. The cylinders can allow removal of the ignition key while the engine is running, leading to a possible rollaway, crash and injuries to people inside the vehicle and pedestrians, GM said.
The car company said it knows of “several hundred complaints of keys coming out of ignitions. Searches of GM and government databases found one rollaway in a parking lot that resulted in a crash and one injury claim.”
Its research, however, has not turned up any deaths associated with this second problem.
The expanded recall covers the 2003-2007 Saturn Ion, 2005-2010 Chevrolet Cobalt, 2006-2010 Pontiac Solstice, 2007-2010 Pontiac G5, 2007-2010 Saturn Sky and 2006-2011 Chevrolet HHR.
GM is just beginning to send replacement parts for the switch issue to dealers and has said it could take until the end of the year before all the vehicles are repaired. It did not say how this new issue will affect that timetable. However, the automaker warned owners of the cars that they should remove any excess items from their key rings, leaving only the vehicle key to operate the car until repairs are made.
The delay and the reasons behind the automaker’s failure to replace the faulty switch are the subject of investigations from the NHTSA, the Department of Justice and Congress.
At congressional hearings earlier this month, Sen. Claire McCaskill (D-Mo.) said GM had engaged in a “culture of coverup.” She pointed to documents that showed DeGiorgio signed a 2006 memo about a redesigned ignition switch -- even though he swore during a legal deposition that he knew nothing about the change. Altman also has been involved in testimony in lawsuits about the switch. GM did not give specific reasons why the engineers were put on leave.
GM is now paying fines of $7,000 a day for missing a NHTSA deadline to provide key information for the safety agency’s investigation of why it took the company more than a decade to recall cars with faulty ignition switches. The NHTSA said it is missing about a third of the information it requested.
Barra also said the automaker had created a “Speak Up for Safety” program to recognize employees for ideas that make vehicles safer, and for speaking up when they see something that could affect customer safety.
“GM must embrace a culture where safety and quality come first,” Barra said. “GM employees should raise safety concerns quickly and forcefully, and be recognized for doing so.”
Some analysts lauded Barra’s moves.
“Suspending these two engineers is another indicator of how seriously General Motors is taking this ignition switch recall,” said Karl Brauer, an analyst at Kelley Blue Book, the auto information company.
He said the suspension comes on top of Barra ordering an internal investigation and hiring a global safety chief, “and it gives merit to her claims of a ‘new GM’ that won’t operate the way old GM did.”
But management consultant Kevin Paul Scott said Barra “either needs to show the buck stops with her, and opt for full disclosure of everything, or the board of directors needs to terminate her.”
“Mary Barra has come off as compassionate so far, but now she needs to show that she is competent and capable to handle this situation,” he said.
Barra, a longtime GM employee, was promoted to chief executive in January. She said she only started to learn about the ignition switch problem in December.