Why didn’t GM fix faulty switches? A per-car cost of less than $1
General Motors (GM) faces mounting criticism that it failed to repair a defective part linked to the deaths of at least 13 people because of the costs involved in making the fix.
The auto giant reportedly discussed changing the part but opted not to because it would have cost 90 cents per unit. GM has recalled 2.6 million cars because of the faulty part. Reuters cites a 2005 email exchange between GM engineers that debates making the change. The problem? It would have added total re-tooling costs of $400,000, the report alleges.
During a Capitol Hill hearing on Tuesday, Rep. Diana DeGette, D-Colo., claimed that "documents provided by GM show that this unacceptable cost increase was only 57 cents," although Reuters wasn't able to confirm that price.
GM chief executive Mary Barra, who testified at the hearing and also addressed Senate lawmakers today, said she found the idea of neglecting to fix a faulty part because of cost "disturbing." She added, "That is not the way we do business in the new GM."
In her testimony, Barra vowed to find out what led to the stumble, but said she wasn't able to explain "why it took years for a safety defect to be announced."
Although Barra repeatedly deflected lawmakers questions during her appearances on Capitol Hill, what she didn't say in her testimony may also be revealing: that GM, when it was churning out the cars with the faulty switches, was in dire financial shape and heading for bankruptcy.
Meanwhile, the car giant's parts supplier, Delphi (DLPH), had its own troubles. It filed for bankruptcy in 2005, after a history of losses following its 1999 spinoff from GM. Delphi, which emerged from bankruptcy in 2009, was the supplier of the ignition switches for the recalled vehicles, according to a memo from the House Committee on Energy and Commerce.
So what's next for GM? It's clear that the scrutiny isn't over, with the automaker dealing with its own probe, multiple congressional investigations and lawsuits.
But with the company's stock down about 15 percent this year as a result of the recall fallout, some analysts and investors are asking whether it might be a good time to buy shares in the automaker. As CNN Money notes, GM has a strong product pipeline, and is expected to see strong demand in the U.S. and internationally.
The big question may be how long it takes consumers to forget about the recall fiasco. History shows that consumers are quick to move on -- both Toyota and Honda increased market share in 2012 despite recalls. And for now, the recall crisis doesn't seem to be hurting GM in the showroom. The company on Tuesday reported that sales rose 4 percent in March compared with the year-ago period.