GM (General Motors Company) agreed to pay a fine of $35 million to the U.S. safety regulators because of the late recall of 2.6 million older-model small vehicles associated with 13 front seat fatalities and 31 crashes, due to faulty ignition switches. This is the maximum fine which the government can impose. Nonetheless, it only constitutes one day’s revenue of GM based on the sales in the initial quarter of this year.
The automaker identified the switch issue in 2001. As a matter of fact, the engineers offered several ways to rectify the defect but none of them was accepted because of cost concerns. GM finally announced a recall in February this year. According to GM, uneven roads or a heavy key ring can cause the ignition witch of the recalled vehicles to shift away from the run position, thus turning off the electrical power and engine. In such a condition, the front airbags will not inflate in case of a collision.
The NHTSA (National Highway Traffic Safety Administration), the auto safety supervisory body of the American government, is investigating GM’s delayed recall. Lawfully, the automobile manufacturing companies are supposed to alert the NHTSA about any safety concern in cars within five business days of recognizing the problem.
Therefore, GM has been accused of breaking the law. Congress says that the fine to be imposed on the company should be raised to $300 million. Moreover, the consumer safety advocate demands for a Justice Department investigation to decide the penalty. Earlier, automakers such as Toyota Motor Corporation and Ford Motor Company have been fined for late recalls. Toyota also paid a lump sum fine for delayed reporting of safety issues in its cars.
Currently, General Motors holds a Zacks Rank #3 (Hold). Fox Factory Holding Corp (FOXF), carrying a Zacks Rank #1 (Strong Buy) is a better-ranked automobile stock.