GM Switchgate and the largest recall ever
By : Abdel Aziz Aluwaisheg
I write this article from Washington, where the “Switchgate” saga has again dominated the headlines. General Motors has issued six new recalls to address a range of flaws in more than 3.5 million vehicles worldwide. Included in that number are nearly 3.4 million Buicks, Cadillacs and Chevrolets that may suffer from an ignition switch problem similar to the one that’s kept GM in the headlines since February. On June 27, it recalled another 474,000 cars, bringing the total to about 11 million cars this year.
Earlier, in May 2014 the United States National Highway Traffic Safety Administration (NHTSA), the main US governmental body responsible for road safety, fined GM $35 million for failing to recall cars with faulty ignition switches for a decade, despite knowing there was a problem with the switches. The fine was the maximum the regulator could impose. Congress is considering these days increasing the maximum fines the regulator can impose from $35 million to $300 million.
These new recalls have added more pressures on GM’s bottom line. Already, on April 24, 2014, GM said that the cost of repairing millions of recalled vehicles would come to $1.3 billion, which virtually wiped out its profit for the first quarter 2014, leaving it with only $108 million of profits in the quarter.
The company recalled a total of seven million vehicles during the first quarter, most prominently 2.6 million with a faulty ignition switch tied to at least 13 deaths. GM said it would spend about $700 million to fix that ignition switch and another $600 million on other recalls.
That was before the latest recalls this month. As such, its profits for the second quarter of 2014 may also suffer.
It is not clear yet how many deaths and injuries have been caused by the faulty switches, but death may well exceed 13 reported for the earlier recalls, in the first quarter, as more lawsuits are now expected after the new announcements. GM itself has announced that it is facing 79 customer lawsuits in the US asking for about $10 billion for economic losses attributed to the recall.
I have not seen estimates about related death and injuries occurring outside the US. The crisis surrounding GM safety recalls is still unfolding and may go well beyond this year’s profits. In addition to the NHTSA inquiry, GM is facing an investigation by US Congress panels, the US Justice Department, the Securities and Exchange Commission (SEC), in addition to numerous private lawsuits from injured parties. The most serious part of the crisis is the “Switchgate” controversy, where the company is accused of knowing about the faulty switches for years but failed to inform authorities or customers.
The company has reportedly fired some staff it believed were responsible for the cover-up, but investigation is still ongoing to determine how high up the corporate ladder the cover-up may reach.
While it is sad to see a great old company like GM self-destructs, many of its customers are feeling betrayed by the company they have trusted for so long. I was one of those customers. In March 2014, I sold my last GM car, after a 38-year relationship with the company. My last car was a Cadillac that suffered from the faulty switch problem, but the company, through its local agent, failed to acknowledge, let alone fix it. In the middle of traffic, the car would go dead, where the engine shut off, brakes and steering included. In the second case it happened, I was driving to work on King Khaled Road. I slowed down to get off the main road, but as I hit the brakes, everything went dead and the brakes would not work. The car later stopped by its own inertia after applying the emergency brake and hitting another car in front. The same problem happened twice after that. Each time the car was taken to the agency, they said that they could not find anything wrong. “It was just a fluke”, they said. Each time, they promised it would not happen again.
Finally, one day, the engine failed to re-start altogether. All attempts to revive it failed. The dealer could not revive it either by the usual methods. They suggested that they could try to open the engine, but that there was no guarantee that that would revive it. They asked for a $2,000 fee for such a procedure, just for the investigation, plus the cost of repair, which they could not estimate beforehand. The alternative? Scrap the car, for a $1,000, they said! Since the car had cost me about $48,000, that proposal seemed unfair.
We took the car to a local mechanic, who said that he did not have the equipment to diagnose the problem, but that he would just replace the engine. He installed a refurbished engine and the car started moving again. Cost: $1,867, including labor and parts. In March 2014, after using the car for over a year, with no serious problems, I sold it.
The sale sadly ended my 38-year relationship with GM. I doubt that I will ever buy another GM car. For decades, I kept a GM car of one type or another in my possession. In March 1976, while a student in the United States, I bought my first GM car, a brand new Camaro, which performed beyond expectations and convinced me to buy more GM cars over the following years.
If I had any doubts about ending my decades-long relationship with GM, its local agent has removed them. The local agent failed to service the car properly and denied any responsibility.
An investigation by the Ministry of Commerce and Industry of Saudi Arabia is called for. MOCI has repeatedly gone after car dealers suspected of shady practices. In this case, GM dealers should be investigated to make sure that they have contacted the owners of all affected cars, to make the necessary repairs. An additional investigation is necessary to find out how many in Saudi Arabia have been injured by the defects and how many are owed reparations.