GM’s Recall Woes Worsen as CEO Prepares for House Hearing

April 1 (Bloomberg) -- GM CEO Mary Barra testifies before the House Energy and Commerce Committee in Washington about GM's ignition switch recall. (Source: Bloomberg)

The pressure on General Motors Co. is mounting as Chief Executive Officer Mary Barra prepares to testify before Congress at 2 p.m. about why the automaker waited more than a decade to recall cars linked to 13 deaths.

House investigators said in a memo today that consumers complained to GM dealers 133 times about cars unexpectedly stalling or turning off when they went over bumps or nudged the ignition key. At a news conference outside the U.S. Capitol, family members of crash victims called for tougher criminal penalties for automakers that fail to report defects.

Henry Waxman, the top Democrat on the U.S. House Energy and Commerce Committee, said he will introduce legislation today to increase penalties on automakers that fail to disclose defects, strengthen disclosure requirements for companies, and boost funding for the National Highway Traffic Safety Administration.

“We must improve the law to prevent the next auto tragedy,” Waxman said.

Today’s hearing before the committee will focus on ignition switches that turned off when jarred, cutting power to the car. Barra has said she didn’t know why it took so long to recall the 2.6 million vehicles affected.

The crisis is GM’s biggest since emerging from bankruptcy in 2009. Yesterday, the Detroit-based automaker doubled its recall-related charges to $750 million after saying faulty power steering in 1.5 million other vehicles needs to be fixed. So far this year, GM has recalled almost 7 million vehicles worldwide, denting a reputation for quality that the automaker had only recently repaired after emerging from a government-sponsored bankruptcy.

Photographer: Evan Vucci/AP Photo

General Motors CEO Mary Barra is sworn in on Capitol Hill on April 1, 2014, prior to testifying before the House Energy and Commerce subcommittee on Oversight and Investigation. Close

General Motors CEO Mary Barra is sworn in on Capitol Hill on April 1, 2014, prior to... Read More

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Photographer: Evan Vucci/AP Photo

General Motors CEO Mary Barra is sworn in on Capitol Hill on April 1, 2014, prior to testifying before the House Energy and Commerce subcommittee on Oversight and Investigation.

GM Shares

Spooked by the mounting recalls and a U.S. Justice Department investigation, investors have driven down the shares about 15 percent this year.

“This recall started at a 6 and it’s starting to get closer to a 9,” said Jesse Toprak, chief analyst with Cars.com. “It’s getting bad where the average new-car shopper can’t get away from this news. That’s their biggest fear.”

Barra may be asked to respond to revelations that GM decided it would be too expensive to fix the part. After months of studying switch failures in the Chevrolet Cobalt, GM canceled a proposed change in 2005, when a project engineering manager cited high tooling costs and piece prices, according to documents obtained by House investigators.

GM Memo

“None of the solutions presents an acceptable business case,” the engineer said, according to a GM memo cited by the House committee. While the memo didn’t identify the person, Gary Altman testified in a lawsuit last year that he was program engineering manager for the Cobalt in March 2005 and continued in the job until that May.

Photographer: J. Scott Applewhite/AP Photo

Clarence Ditlow, executive director of the Center for Auto Safety, displays a GM ignition switch similar to those linked to 13 deaths and dozens of crashes of General Motors small cars like the Chevy Cobalt, during a news conference on Capitol Hill in Washington on April 1, 2014. Close

Clarence Ditlow, executive director of the Center for Auto Safety, displays a GM... Read More

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Photographer: J. Scott Applewhite/AP Photo

Clarence Ditlow, executive director of the Center for Auto Safety, displays a GM ignition switch similar to those linked to 13 deaths and dozens of crashes of General Motors small cars like the Chevy Cobalt, during a news conference on Capitol Hill in Washington on April 1, 2014.

Consumers complained to GM dealers 133 times from June 2003 to June 2012 of cars unexpectedly stalling or turning off when they went over bumps or nudged the ignition key, the House committee’s Democratic staff said in a memo released today.

GM technicians linked many of those complaints to faulty ignition switches, at a time the company was denying a defect existed, according to the memo, which was based on an analysis of the automaker’s warranty-claims database. The company still hasn’t reported most of those cases to regulators, the staff members said.

Lawmakers also are focusing on another engineer they say signed off on an incompletely documented effort to improve the ignition switch.

Faulty Switches

Engineer Ray DeGiorgio approved a design change in 2006 that improved the spring in the faulty ignition switch and made it more robust, authorizing its production without fully documenting the decision, according to a letter Democrats on the Energy and Commerce Committee sent yesterday to Barra.

The allegations may heighten scrutiny of DeGiorgio, who at the time was the lead design engineer on Cobalt ignition switches, according to the letter. In a deposition taken in early 2013 in a wrongful-death suit against GM in Georgia, DeGiorgio testified that he hadn’t been aware that GM had made any change to the part.

“This information raises important new questions about what GM knew, when GM knew about the risks from this faulty ignition switch, and how the company has handled the recalls of affected vehicles,” Waxman, of California, wrote with Diana DeGette of Colorado and Jan Schakowsky of Illinois.

A GM spokesman declined to comment about DeGiorgio and said the company has the opportunity to respond at the hearing.

Barra also may be asked why previous CEOs weren’t made aware of the safety issues.

Barra’s Role

She has said she was told about an analysis of stalling cars in December and was informed on Jan. 31 of the decision by a GM committee to recall Chevrolet Cobalts and other small cars with the faulty switch. The first recall came Feb. 13 and has been expanded twice since then.

“As soon as I learned about the problem, we acted without hesitation,” Barra said in prepared remarks of her testimony that were released yesterday. “We told the world we had a problem that needed to be fixed. We did so because whatever mistakes were made in the past, we will not shirk from our responsibilities now and in the future. Today’s GM will do the right thing.”

Barra also met privately in Washington yesterday with almost two dozen family members of those who had died in crashes. The meeting was arranged by Texas lawyer Bob Hilliard, who is representing some families in a lawsuit against GM.

Victims’ Families

At the news conference today, Ken Rimer, whose stepdaughter died in October 2006 when the Cobalt she and two friends were in stalled during a shopping trip and struck some trees, called the car a “death trap.” It was only later that the family learned GM knew four years earlier that it was selling cars with an “ill-fated ignition switch,” he said.

Not all of the heat will be directed Barra’s way during today’s hearing.

David Friedman, NHTSA’s acting administrator, probably will be asked to explain why his agency passed over an opportunity to address the ignition-switch defect in 2007. According to an interview between current NHTSA officials and staff members of Energy and Commerce Committee, the agency opted not to open a formal defect investigation even after a NHTSA official had said a probe was justified.

Still, in prepared remarks released yesterday, Friedman left no doubt that he plans to blame GM. Newly provided information from the automaker “likely would have changed NHTSA’s approach to this issue,” he said.

Friedman and Barra are also scheduled to testify again tomorrow at a Senate committee hearing.

Quality Issues

The crisis hits GM as it was trying to make the case to buyers that it has put past quality issues behind it.

“They thought they were turning the corner, then this hits and basically it means they have to begin their rebranding, their restructuring from scratch,” said David E. Johnson, CEO of Strategic Vision LLC.

GM is so concerned about retaining customer loyalty, it’s paying Chevrolet and Buick dealers to have loaner cars on hand for owners inconvenienced by recall repairs. The company said today it had to delay its March sales report, which usually is released at about 9:30 a.m., until this afternoon because of a computer systems issue.

GM told dealers last week that they’re eligible for $1,000 for each small car added to the loaner fleet in addition to $500 already available, according to a person familiar with the effort. With as many as 2.6 million small-car owners flooding dealerships to have their ignition switch replaced, GM would rather let them drive to work in a new small Chevy than have to rent a Toyota or a Ford for them.

“It’s a small step, in addition to everything else we’re doing, to ensure we have an adequate supply of courtesy vehicles or rental vehicles available for customers impacted by the ignition-switch recall,” said Jim Cain, a GM spokesman. “These are some of our newest and best small vehicles and if somebody wants a test drive, we want to make sure we can provide it.”

To contact the reporters on this story: Tim Higgins in Detroit at thiggins21@bloomberg.net; Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editors responsible for this story: Bernard Kohn at bkohn2@bloomberg.net Kevin Miller

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