Power Steering Recall Could Cost GM Over $1.5 Billion

GM RecallAlmost two weeks after NLPC first requested that General Motors recall vehicles with defective power steering components, the company has agreed to the recall and finally remove the dangerous vehicles from the roads. Over 1.3 million Saturn Ions and related vehicles are included in the recall, bringing the total amount of GM vehicles recalled over the past month or so to over 6 million. The total cost to GM for the recalls will be in the billions of dollars with the latest recall probably accounting for over $1.5 billion on its own. The costs to GM’s reputation are even greater.

GM has known about the latest power steering defect since 2009. It appears that the issue revolves around a defective power steering assist motor supplied by JTEKT. GM sued that company back in 2009 and recalled Chevy Cobalts and Pontiac G5s in March of 2010 which had the same defective components as the models that are just now being recalled. It is important to note that the entire four year delay was during the time that “New” GM management was in control.

Regarding the latest recall cost, my research shows that the power steering columns must be replaced at a cost of approximately $1,200 per vehicle bringing the cost to over $1.5 billion. GM intends to take a charge on its upcoming earnings of $750 million for recalls during the first quarter; an amount that greatly underestimates the total cost of the recalls that seem to be coming on a daily basis. A much larger portion will likely be written off in the second quarter, when the service bills start rolling in.

GM CEO, Mary Barra, will be appearing before Congress today to try and explain why the automaker has failed repeatedly in its obligation to remove dangerous vehicles from the road. GM has known about defects in its vehicles for years and is currently being sued on multiple fronts for failing to recall vehicles with ignition switch problems that were involved in the deaths of at least 13 people. The latest power steering recall is just the latest example of GM not being trustworthy enough to recall dangerous vehicles without media attention pressuring them to do the right thing.

While GM is sure to try and appear compassionate and concerned with the safety of motorists, their actions speak otherwise. I expect Ms. Barra will, once again, explain how she is a mother and very sorry for what happened. This apologetic approach only came after a media storm which exposed how unethical and irresponsible GM has been regarding the safety of its vehicles.

For her part, Ms. Barra was the head of product development from 2011 to 2014, a time during which GM was ignoring calls from victims to recall millions of defective vehicles. That fact seems to be getting overlooked as GM apologists claim how new Barra is at her current position, implying that she has no accountability for GM’s failings. The early response to the current recall scandal by Barra’s new regime seemed no more ethical than past regimes.

The initial response from “New” GM when the ignition switch recall deadly delay came to light was to blame the victims for speeding and being intoxicated. Claims were made that the 13 deaths of drivers of defective vehicles occurred when motorists were driving off-road. I guess the lawyers at GM advised them that, technically, when motorists’ cars swerve off the road as steering locks up, the cars can be considered to be driven “off-road.” The deceptive early statement was not what I would call a “mothering” or “compassionate” response. The statement was made by GM spokesman, Alan Adler, who stated, “All of these crashes occurred off-road and at high speeds…” Mr. Adler should clarify his early statements and apologize to victims and their families.

Equally sleazy was GM’s next ploy to try and sell a few extra vehicles and capitalize on the tragic loss of lives by offering drivers of defective vehicles an extra $500 off of a brand new GM car. If GM really wants to take care of its victims, it should waive its protection against claims arising before the 2009 bankruptcy process. In July of 2009, GM emerged as a new company and is protected against liability from events occurring prior to that date.

GM filed for its bankruptcy on June 1st of 2009. Just two weeks prior to that date, GM had meetings regarding the ignition switch defects which resulted in motorists’ deaths. The liability arising from those cases may have been intentionally hidden from the bankruptcy court, something that the victims’ lawyers will point to as they seek compensation for their clients from GM.

“New” GM is clearly responsible for events occurring after July of 2009. An argument can be made that executives from the old regime were still at the company and should now be held accountable for all of the past cases. In another attempt at compassion, Ms. Barra has directed the attorneys that are defending GM to conduct an investigation and determine just why GM has been so darn lax at recalling vehicles with deadly defects. I wouldn’t expect the lawyers to be too harsh on the company.

GM also had high-level meetings regarding the ignition switch defect in 2011. As product development head, in charge of quality control, shouldn’t Ms. Barra have been made aware of the critical issue? This is a point that needs to be investigated by someone other than GM’s attorneys.

It will be interesting to see just how critical today’s committee will be of GM. I sense that politicians are hesitant to criticize GM after Mitt Romney was lambasted for daring to discuss the shortcomings of the auto bailout process that cost taxpayers billions of dollars. Also, GM’s politically-motivated leadership may have foreseen the firestorm coming and shrewdly calculated that a woman CEO would be much less likely to receive harsh criticism from politicians. If GM gets off the congressional hook for its immoral behavior, the court of public opinion should take a toll on GM when consumers decide on which carmaker they want to trust and reward when they purchase their next vehicle.

Mark Modica is an NLPC Associate Fellow.