GM may be driving past ignition switch crisis
(Reuters) - For signs that General Motors Co's ignition switch crisis may be fading, look no farther than the quiet annual meeting this week.
A total of 29 shareholders attended, and not one asked about the defect linked to at least 13 deaths and the recall of 2.6 million cars. The only acknowledgement of the crisis inside the meeting was from shareholders who complimented CEO Mary Barra. Outside, a handful of protesters were outnumbered by media.
Months after announcing the recall, GM faces major hurdles, including reaching a settlement with victims and their families, legislators eager to grill Barra a second time and calling for new safety laws, and criminal probes by several states and the U.S. Department of Justice.
GM's costs so far are close to $2 billion, and it faces the potential for billions more in civil and criminal legal settlements if the experience of rival Toyota Motor Corp in its own massive recall is a guide.
But car sales are rising, and last week's internal report on why GM took more than a decade to recall the defective part placated many by acknowledging shortcomings at the company without uncovering major new problems. Wall Street applauded the report, including Buckingham Research which titled a note to clients, "A New Beginning".
Thomas Campbell, head of the crisis management team at the law firm Pillsbury Winthrop Shaw Pittman, represented one of the companies involved in the Gulf oil spill and said GM was taking decisive action after a slow start. The internal report and hiring of lawyer Kenneth Feinberg to set up a victims fund signaled GM was serious about addressing its problems.
“The government tends to involve itself in any situation more deeply if a company isn’t taking care of the issues on its own. The current steps that GM has taken have shown that it is ready and willing to take these kinds of actions,” he said.
Barra herself apologized again on Tuesday for the suffering caused by the faulty switch but focused on the future.
"I am optimistic about where we are and where the company is heading," Barra told shareholders, who overwhelmingly approved compensation plans for executives that could net Barra millions.
GM shares are up nearly 3 percent since early February, when the first reports hit of the recalls. Stock researcher Starmine, a Thomson Reuters company, estimates GM's intrinsic stock value over the next decade at $64.35 a share, versus a close of $36.40 on Tuesday, and about 71 percent of analysts who track the stock rate it a "strong buy" or "buy."
Many are focusing on GM's continued strong U.S. sales, which rose 13 percent in May. That was the No. 1 U.S. automaker's best monthly total since before the U.S. recession. GM this year has recalled globally about as many cars as are sold in the United States in a year, but dealers say consumers are not put off. Some drivers of recalled cars are buying new GM cars.
Excluding $1.7 billion in charges for the ignition switch recall and other recalls, overall profits this year may top expectations, Barra said last week, citing profitable or improving operations in the United States, China and Europe.
The next test for GM is the establishment of the compensation fund for victims of the faulty switch and their families. Feinberg, the architect of programs for victims of high-profile catastrophes like the Sept. 11 attacks, is working on guidelines that will determine who qualifies and how much they will be paid. Barra expects the fund to begin accepting claims on Aug. 1.
Consumer-safety advocates, including the Center for Auto Safety, had previously called upon GM to set aside at least $1 billion to cover claims. Buckingham analyst Joseph Amaturo predicted the ultimate cost would be "immaterial" given GM's financial heft.
How GM handles that process will be key to putting some of the ill will toward the company behind it, plaintiffs attorneys and crisis experts said.
One such lawyer, Robert Hilliard, said the company is failing to follow through on its contrition in court cases, fighting efforts to set aside older settlements reached before the switch problem became public. That kind of attitude would hurt GM’s reputation, he said.
“They’re talking the talk, but they’re not walking the walk,” said Hilliard, who added that he was “very skeptical” that a GM program would give victims fair compensation for injuries or death.
Hilliard, however, was among several plaintiffs' lawyers approached by GM and one of the first Feinberg called on to discuss the case.
GM declined to respond specifically to Hilliard's comments, saying the company had hired Feinberg in order to treat victims fairly.
Time may be on GM's side in many of the investigations and court cases with potentially big price tags.
It took three years for Toyota Motor Corp to settle litigation from customers who said a massive recall caused their cars to lose value. In late March, Toyota agreed to settle a Justice Department criminal probe, taking the total for the two deals to $2.8 billion. But Toyota U.S. sales showed no obvious sign of harm, rising 13 percent in April and 17 percent in May
The Justice Department also could press charges against individuals, if it found any evidence of wrongdoing.
Congress, distracted by elections, may have difficulty changing auto safety legislation, even if Barra, who testified in April, is asked to return.
Heads of committees in the House of Representatives and Senate expressed dismay last week with the findings of the internal report, which cleared senior executives of fault. They promised an aggressive second round of hearings sometime this summer.
Senate Democrats are clamoring for a legislative response to GM's botched response to a safety issue, and House Energy and Commerce Chairman Fred Upton, a Republican, has left open the possibility of a bill to clamp down on the auto industry.
But with so few legislative days left this year because members of Congress are campaigning for re-election, it is unclear whether any legislation actually could make it to the finish line. One opportunity for possibly moving a measure later this year would be if it was attached to a must-do highway funding bill.
"Barra has done a nice job so far in public, in front of Congress," said Carl Tobias, professor at the University of Richmond School of Law. "It’s a terrible assignment and she’s doing what she can."