Delphi Probed on GM's Late Recall - Analyst Blog

After the scrutiny on General Motors Co.'s GM late recall of vehicles with faulty ignition switches, lawmakers are now pressing Delphi Automotive plc DLPH, the parts supplier of General Motors, for an explanation.

Senators are now demanding a detailed report from Delphi on their reaction after realizing that the ignition switches did not match the specifications of GM. Delphi had provided a solution to the switch problem way back in 2005; however, the modification suggested was not accepted by General Motors. The senators are asking for a thorough report on the communication which took place between the companies after the discovery of the defect and the dismissal of the recommended solution.  

The lawmakers want to know the reason behind the design change rejection in 2005. They further want information on whether Delphi protested the rejection and informed the NHTSA about the defect. Delphi was the manufacturer of the faulty switches that led to the recall.

In Feb 2014, General Motors announced the recall of 2.6 million older-model small cars associated with 31 crashes and 13 front-seat fatalities due to faulty ignition switches. The recalled vehicles mainly include Chevrolet Cobalts and Saturn Ions.

Considerable costs associated with the repair are a potential reason behind the delayed recall. General Motors identified the switch problem in 2001. As a matter of fact, the engineers provided different options to rectify the defect but none of them were accepted due to cost concerns.

According to General Motors, a heavy key ring or uneven roads can cause the ignition switch to shift away from the run position, thus turning off the engine and electrical power. In such a situation, the front air bags will not inflate in case of a crash.

General Motors also hired a team to probe into an ignition switch recall. The investigation team comprises attorney Anton Valukas, the chairman of Chicago law firm Jenner & Block Tony Valukas and General Motors' general counsel Michael Millikin. In addition, attorneys from the King & Spalding firm will be joining the team.

Meanwhile, General Motors is focused on solving the problem. It has established a new fast-track ordering system to speed up the shipment of parts required to fix the faulty ignition switch. All the ordered parts for a car will be shipped in a single kit. The company will give priority status to these orders.

General Motors currently holds a Zacks Rank #4 (Sell). Delphi currently holds a Zacks Rank #3 (Hold).

Better-ranked automobile stocks worth considering are Tesla Motors, Inc. TSLA and PACCAR Inc. PCAR. Both these stocks carry a Zacks Rank #2 (Buy).