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General Motors (GM) Shares Tumble on Federal Probe of Recall

By: , dated March 12th, 2014

Shares of Detroit, Michigan, based General Motors Company (GM) fell on Tuesday, losing $1.91 per share, or 5.15%, to $35.18, on volume of just over 41 million shares, on a down day on Wall Street across the board. Bloomberg reported that the Justice Department has opened a criminal investigation of the company in regard to deadly ignition switches installed in certain compact cars between 2003 and 2007. Congress is also launching a probe into the matter, which has been linked to the deaths of 13 people involved in 31 crashes.

GM is the largest automobile manufacturer in the US, and the second largest in the world after Toyota (TM), selling nearly 9.3 million vehicles worldwide in 2012. The company produces cars in 37 countries, and does business in 157. GM had $3.8 billion in profits in 2013 on total revenue of $155.4 billion. The company employs about 219,000 people.

The Justice Department opened the investigation to determine if GM broke any laws in the recall of the faulty ignition switches. The case is being handled by the US Attorney’s Office in New York. The issue is the fact that GM failed to recall the vehicles despite admitting knowledge of the defect for at least a decade. The recall affects 1.6 million compact cars manufactured in model years from 2003 to 2007.

Subcommittees in both the House and Senate have begun probes to determine why the National Highway Traffic Safety Administration (NHTSA) failed to take action either. The NHTSA is the government’s road safety watchdog agency.

The defective ignition switches cause car engines to suddenly shut down, resulting in the loss of both power assisted steering and brakes, and interference with safety air bag inflation during crashes. The shut down – which can be caused by heavy key chains – causes drivers to lose control of their vehicles and risk serious accidents.

The investigation of GM by the Justice Department has not been made public. GM officials have not commented on the investigation or the Congressional probes, but it has hired an attorney to investigate the company’s actions leading up to the recall.

The company has pledged full cooperation in the investigation and the probes. GM CEO Mary Barra indicated that an internal review has been launched by the company that will “give us an unvarnished report on what happened; we will hold ourselves accountable.”

Conversely, the NHTSA has indicated that the rate of failure to the ignition switches was not significantly worse on GM cars than it is for vehicles manufactured by other car manufacturers. The NHTSA could fine GM up to $35 million for a delayed response to requests for detailed information regarding when GM knew about the problems with the ignition switches.

But the criminal investigation, in combination with Congressional hearings, could hurt the company’s public image at a time when it’s trying to remarket its image as a manufacturer of quality cars.

Other News General Motors Company
GM Maintaining Pricing ‘Discipline’ Amid Sales Slump
GM is maintaining pricing discipline on its higher end models.
GM Sales Up 19.9% in China
GM announced a 19.9% year-over-year increase in sales in China.

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One Response to “General Motors (GM) Shares Tumble on Federal Probe of Recall”

  1. Lisa Ortega says:

    Now, that’s gotta hurt. I’m no expert when it comes to the industry but I understand figures and statistical data and I gotta say that it’s not looking for GM.

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