GM Faces Congressional Probe - Analyst Blog

General Motors Co. GM has been facing tough times lately due to a series of vehicle recalls. CEO of General Motors, Mary Barra, had to face a congressional committee hearing due to the delayed recall of vehicles with faulty ignition switches. Barra revealed that the company is determined to resolve the issue without further delay.

The recalled vehicles mainly included Chevrolet Cobalts and Saturn Ions vehicles. Considerable costs associated with the repair are a potential reason behind the delay in recall. If replaced in 2007, the switches would have cost the automaker $100 million. However, the cost will be much higher now.

General Motors identified the switch problem in 2001. The engineers provided different options to rectify the defect but none of them were accepted due to cost concerns. However, General Motors is now focused on resolving the issue and also apologized for the delay.

General Motors hired a team to probe into the ignition switch recall of 2.6 million older-model small cars associated with 31 crashes with 13 front-seat fatalities. The company intends to gain an unbiased report on the delayed recall from the investigation. Further, the automaker has created a new position of Vice President, Global Vehicle Safety to oversee all safety related issues in vehicles.

General Motors also announced to offer free loaner cars and a cash allowance of $500 for purchase of a new vehicle to the owners of the recalled ignition switch defect cars. The owners will be able to use the loaner cars until the new switches are made available. The automaker expects the new switches to be available from Apr 7. To date, General Motors has provided 13,000 loaner cars.

Barra also announced that it has hired Kenneth Feinberg, known for handling the compensation funds for the victims of 9/11, the Boston Marathon bombing and the BP oil spill, to find out ways to compensate the victims of accidents. Allocation of separate fund for victims is not yet confirmed.

General Motors currently holds a Zacks Rank #5 (Strong Sell).

Better-ranked automobile stocks worth considering are Tata Motors Ltd. TTM, Daimler AG (DDAIF) and Tesla Motors, Inc. TSLA. Tata Motors and Daimler sport a Zacks Rank #1 (Strong Buy) while Tesla carries a Zacks Rank #2 (Buy).