UPDATE 2-GM urges drivers stick to sparse key ring even after recall repair

Wed Mar 12, 2014 6:40pm EDT

* U.S. Senate announces its own probe of GM, NHTSA over recall

* Senate, House say criminal investigation could complicate their probes

* Faulty ignition switches linked to 12 deaths

* Hit to GM stock "overdone" -analyst

By Ben Klayman, Richard Cowan and Eric Beech

DETROIT/WASHINGTON, March 12 (Reuters) - General Motors Co said on Wednesday that even after the vehicles in its ignition-switch recall are repaired, owners should avoid weighing down their key rings with anything more than the key and fob.

Also on Wednesday, U.S. Senator Claire McCaskill said a Senate subcommittee plans to hold a hearing in early April on GM's recall last month of more than 1.6 million vehicles with the faulty ignition switches which have been linked to 12 deaths. Most of the affected cars were sold in the United States.

GM became aware of the problem a decade ago.

"We have to get to the bottom of this," said McCaskill, a Missouri Democrat. "We need to find out who dropped ball and put millions of Americans at risk."

GM has been telling owners affected by the recall that until the repairs are made only the key should be on the key ring. That remains largely the case after the fix as well, according to a document filed with U.S. safety regulators.

"We recommend that customers only utilize the key, key ring and key fob (if equipped) that came with the vehicle," GM said in the document filed with the National Highway Traffic Safety Administration. That was in response to a question about whether customers can put their heavy key ring back on after the repair is completed.

A GM spokesman said after the repair is completed, there is no danger of the problem reoccurring. Asked why GM made this recommendation, he added that no ignition switch is safe from being moved from the "run" position if the key chains are too heavy or bulky.

Automotive research firm Edmunds.com said while there is anecdotal evidence owners should avoid too much weight on their key rings, there is no industry standard language on that subject.

The Detroit automaker also said in the filing that it will offer loaner cars in some cases and a $500 cash allowance to unhappy owners affected by the recall.

The problems in the affected vehicles in some instances allowed the engine and other components, including front airbags, to turn off while the vehicle was traveling at high speed. GM previously had said there were 13 deaths linked to the faulty ignition switch, but revised that to 12 on Tuesday because it had double-counted one incident.

The failure is believed to be caused when weight on the ignition key, road conditions or some other jarring event causes the ignition switch to move out of the "run" position, turning off the engine and most of the car's electrical components mid-drive, with sometimes catastrophic results.

GM said in the NHTSA document on Wednesday that it is providing rental or loaner vehicles in some cases.

The company also said it is not buying back affected vehicles if owners ask for that, but is offering a $500 special cash allowance, through April 30, to buy a 2013, 2014 or 2015 model-year vehicle.

On Tuesday, a source said federal prosecutors have opened a probe of GM, examining whether the company is criminally liable for failing to properly disclose problems with some of its vehicles that led to the recall.

PARALLEL PROBES

The New York office of the Federal Bureau of Investigation is involved in the probe, a source familiar with the matter told Reuters on Wednesday.

The federal probe by the FBI and the U.S. attorney in Manhattan adds to a growing list of U.S. authorities examining the recall, which GM announced in February. NHTSA previously opened an investigation into whether GM reacted swiftly enough in its recall.

McCaskill said the Senate Commerce Committee's consumer protection subcommittee will examine the responses of GM and NHTSA to the discovery of faulty ignition switches. She told Reuters that the congressional probe is "more challenging" now that the Justice Department also has opened its own investigation.

"While we would like to get as much information as possible and have General Motors as witnesses," McCaskill said her panel's review is "really about how NHTSA has handled this and what are the challenges that NHTSA faces in being an effective cop on the beat."

She said she has concerns about whether NHTSA had insufficient expertise and also about a lack of transparency at the agency. She did not know which GM executives would be called to testify.

Safety advocates have criticized NHTSA for failing to catch the GM issue and failing to demand a recall despite tracking the problems at different points over the past decade.

Kelley Blue Book senior analyst Karl Brauer said NHTSA's lack of action suggests the agency's own review process may be ineffective despite changes made after the high-profile Ford-Firestone tire recall in 2000.

However, NHTSA's chief said U.S. auto-safety regulators did not force GM to recall the cars sooner because the connection between defective ignition switches and failing airbags was not clear.

"If we had that information, if GM had provided us with timely information, we would have been able to take a different course with this," David Friedman, acting administrator for NHTSA, told Bloomberg on Wednesday in Washington.

Transportation Secretary Anthony Foxx told reporters in Washington on Wednesday that he had a "high level of confidence" in NHTSA, "but we'll continue watching as facts unfold and see where we are."

Foxx said his department is having a "dialogue" with the U.S. Department of Justice about the GM recall. "They're looking at the same information we're looking at. They will make that determination."

The U.S. House Energy and Commerce Committee also has ordered GM and NHTSA to turn over information about the automaker's ignition-switch problems. A House committee aide said on Wednesday that while the Justice probe may complicate what information can be received, the committee expects NHTSA and GM to comply with information requests.

GM has declined to comment on news of the criminal probe, but has said it is cooperating on all the various probes.

"We are fully cooperating with NHTSA and will do so with the Congress, too," GM spokesman Greg Martin said in an email on Wednesday. "We welcome the opportunity to help both parties have a full understanding of the facts."

The automaker is also conducting an internal investigation into the matter.

GM faces a fine of up to $35 million from NHTSA, and several analysts have estimated the recall could cost the company $70 million to $280 million.

The automaker has not disclosed what the recall will cost. Analysts agreed that the biggest costs could come from lawsuits likely to result from the recall and probe.

Barclays analyst Brian Johnson said in a research note that Tuesday's 5 percent stock decline was "overdone" as the $3.2 billion hit to the company's market cap was likely well above any potential settlements with the U.S. Department of Justice, state attorneys general and plaintiffs' lawyers.

However, Johnson added that it was unclear what might make the stock rise in coming months as continued media headlines were likely to weigh heavily on GM shares.

GM shares fell 0.9 percent to close at $34.86 on the New York Stock Exchange on Wednesday.