General Motors to Inspect Recall - Analyst Blog

General Motors Co. GM announced that it is hiring a team to probe into an ignition switch recall of 1.6 million older-model small cars associated with 31 crashes with 13 front-seat fatalities. 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.

General Motors will carry out the investigation to gain an unbiased report on the reason behind the delayed recall. Given his efficiency in the Lehman Brothers bankruptcy case, the company believes that Valukas' presence will add value to the investigation.

After the report of the accidents, General Motors announced a recall of 842,000 2003-2007 Saturn Ions, 2006-2007 Chevrolet HHRs, and 2006-2007 Pontiac Solstice and Saturn Sky models in addition to the recall of 778,562 Chevrolet Cobalt and 2005-2007 Pontiac G5 compact cars in North America on Feb 13, 2014. With this, the company is recalling 1,367,146 vehicles in total.

The company will fix the faulty ignition switches, which has been identified as the cause of the accidents. 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 is focused on resolving the issue and also apologized for the delay. The company will be informing customers and will rectify the fault at no extra charge.

The chronology of events filed with the The National Highway Traffic Safety Administration (NHTSA) clearly points out General Motors' awareness of the problem since 2004, when its engineer  detected the  hitch while test driving the 2005 Chevrolet Cobalt. The company initially attempted to avoid a recall by issuing Technical Service Bulletins for the problem. The bulletin advised inserting a key into the ignition switch of the Chevrolet HHR and Cobalt, Pontiac Solstice and G5, and Saturn Sky and Ion vehicles. Moreover, the automaker advised its customers not to use heavy key chains.

NHTSA, the auto safety supervisory body of the U.S. government, has announced an investigation into General Motors's delayed recall. Lawfully, the automakers are supposed to alert the NHTSA about any safety concern in vehicles within five business days of recognizing the problem. The maximum fine for late reporting currently stands at $35 million.

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

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