Last week was pretty stressful for General Motors’ (GM) CEO Mary Barra: Grilled by a U.S. Senate committee again on recalls of some 26 million vehicles in 2014 alone, she was forced to mount a strident defense of the automaker’s top lawyer and Saturday’s news of a “stop sale” order on some Cadillac models. As General Motors heads into earnings later this week, those factors clearly indicate that the GM recall nightmare is far from over.
General Motors and its executives continue to be in the hot seat with Congress, the Justice Department and federal safety regulators over what they knew about the dangerous ignition defect that was not fixed for more than a decade and that has been linked to at least 13 deaths and scores of crashes.
It’s not all gloom and doom for GM stock, however: General Motors is still selling a lot of cars and light trucks, in part because millions of owners that brought recalled vehicles into dealerships for service are actually buying new cars. That apparent disconnect means consumers are not blaming the General Motors for the crisis — at least not yet.
When GM reports earnings on Thursday, look for second quarter sales to hold steady. That’s one reason GM stock has managed to recover most of its 21% decline year-to-date. Profits still might sag over up to $1.3 billion in recall-related charges and the adverse impact of Europe and currency troubles in Venezuela.
The bad news: The GM recall nightmare could be just beginning after Barra’s testimony before the Senate Subcommittee on Consumer Protection last Thursday. Here are three signs that the GM recall crisis is far from over:
GM’s Engine Troubles Are Ongoing
News broke on Saturday that GM had issued a “stop sale” order to all Cadillac dealers on some of its luxury CTS and SRX models because General Motors does not yet have a fix for the problem. The order affects the 2003-2014 CTS and the 2004-2006 SRX, which had been recalled on June 30 for faulty ignition problems that could inadvertently switch off the engine. For those keeping score, GM has recalled nearly 26 million vehicles in more than 50 separate campaigns so far in 2014.
The High Cost of ‘Lawyering-Up’
For those who believe the C-suite is bereft of loyalty, Mary Barra’s defiant refusal to cut loose GM’s general counsel Michael Milliken in the face of daunting criticism is touching — and probably ill-advised. Milliken, a 37-year General Motors veteran who took over as top lawyer as the company worked through its 2009 bankruptcy, has claimed he didn’t know about the faulty ignition switch defect, blaming it on lower-level lawyers who have since been fired.
But the issue wasn’t so easy to dismiss in court…