Boston, MA 03/12/2014 (wallstreetpr) – When price wars, polar vertex and fierce competition were all not enough, General Motors Company (NYSE:GM) pushed itself into another trouble after recalling nearly 1.6 million vehicles, which has now attracted a criminal probe from the U.S. Justice Department.
Delayed Recall Complicates It More
It is reported that the Justice Department has opened a criminal investigation over the automaker’s recent major vehicle recall. GM is believed to be suffering from the safety issues for the past ten years. The recall relates to the problem prevailing in the affected vehicles wherein, the engine turns off while driving and therefore, disabling the airbags. This recall was made last month, but the company accepted that its employees were aware of the defect as early as 2004. The faulty ignition switches led to 13 deaths till now, and it has led the company to initiate its own internal investigation into the matter.
The Department of Justice is currently investigating over the matter as to whether the company is criminally liable for its failure to comply with the timely disclosure norms of its ignition switch failures, which came into notice first time ten years ago. This recall and the following investigations come as a first major challenge for the company’s new chief executive, Mary Barra.
Analysts Concerned Over Reputational Risk
Analysts are drawing several conclusions as to where the issue could lead GM to? For instance, analyst Joseph Spak from RBC Capital thinks that the recall will have material long-term impact on the company. He added that though the immediate financial liability arising to the company will be negligible, but it may suffer substantial loss as a result of reputational risk. Same is the view of JP Morgan’s Ryan Brinkman, who projects insignificant financial loss to come to GM, but expresses concern that the reputational risk may impose a higher threat to the automaker. Still, Brinkman thinks that the share fallout will be less as compared to that of Toyota or Ford. According to Sterne Agee’s Michael Ward, since GM’s actions have been voluntary, therefore, it can mitigate the risk through proactively addressing the consumer issues and making offers to the customers. Ward opines that the company can change the customer perception through steps like offering coupons for purchase of its new model.
