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GM Rocked By Cover-Up Allegations As CEO Testifies

“The hard issue for GM then is not the dollar costs of recalls (but) whether its reputation has been so badly hurt that sales will be affected”.

General Motors, rocked more by cover-up and skulduggery allegations than the recall of 2.6 million vehicles, faces months of uncertainty as congress reports on its failures and talk shows poke fun at new CEO Mary Barra.

The Financial Times’ Lex column reckons the total number of vehicles to be recalled for recent shortcomings is more like seven million, and it didn’t hold back with its opinion on GM management.

“General Motors’ decade of ignorance or indifference about an ignition defect in some of its cars is appalling. Deaths may have resulted and the company has belatedly recalled affected vehicles,” Lex said, although it quickly took the wind out of its own sails by saying the reaction on the stock market – shares down one tenth in a month – the possible financial impact of this saga wouldn’t be too hard to handle.

According to Lex, GM’s estimate of the total cost of the recalls of $750 million compared with its estimate of $4 billion for Toyota’s recent travails.

“The hard issue for GM then is not the dollar costs of recalls, settlements and fines. It is whether its reputation has been so badly hurt that sales will be affected,” Lex said.

Unlike Toyota, GM can hide to a degree from the scandal because it sells no cars under the GM logo.

GM has recalled 2.6 million vehicles worldwide to replace faulty ignition switches which cut engine power and prevent airbags from deploying, and brakes and steering from working. GM has said 12 people died in crashes, which the company has known about since 2001. Other recent, less dramatic recalls take the total to over seven million

CEO Mary Barra has become a butt of jokes on U.S. late night TV comedy shows, as a corporate leader who claimed not to know much of the details in the case.

Media storms
Standard & Poors tried to peer past the rubble left by the media storms after Barra’s testimony in Washington, and wasn’t too bothered, saying it saw no immediate financial impact, although it worried about uncertainties associated with the recalls.

“While certainly a negative factor, the recalls do not prevent an improved business risk assessment, given our current estimate of their likely impact on the company’s overall performance,“ said S&P analyst Dan Picciotto.

“However the recalls could hurt GM’s standing in the U.S. auto market, where it generates the bulk of its profits, and we are watching for any significant deterioration,” Picciotto said.

Two congressional committees – led by Messrs Feinberg and Valukas – are expected to report in late May and early June – so GM will not likely be subject to much more public examination until they are published.

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