With Fine Imposed, What is Next GM Development?

The $35 million fine generated by the consent order from the National Highway Traffic Safety Administration that General Motors agreed to on Friday didn’t surprise analysts from TrueCar and Kelley Blue Book.

Now what these industry observers are waiting to see is if the impact triggered by this ignition switch recall controversy will eventually work its way into the retail or wholesale markets.

“It’s such a dynamic story. Things seem to be moving constantly with more news coming out,” Larry Dominique, president of ALG and executive vice president of TrueCar told Auto Remarketing on Friday.

“The fine is certainly something that I don’t think is surprising a lot of people,” Dominique continued. “But I think GM has done a pretty good job of being transparent, being out there in front of things. The fact that they’ve been so vigilant in making sure that any issue that’s out there in the marketplace is being taking care of, either through service bulletins or through additional recalls, is really starting to show the change in the culture. That’s what (GM chief executive officer Mary Barra) needs to do, so I applaud them for that.

“That penalty in the context of the Justice Department fine against Toyota for $1.2 billion is a small number,” Dominique went on to say.

The penalty Dominique referenced came back in March. That’s when Toyota closed the book on a federal recall investigation that first brought plenty of negative attention to the OEM more than five years ago.

Toyota reached an agreement with the U.S. Attorney’s Office for the Southern District of New York to resolve its investigation initiated in February 2010 into the communications and decision-making processes related to the company’s 2009 and 2010 recalls to address potential “sticking” accelerator pedals and floor mat entrapment. Auto Remarketing’s recap of the development can be found here.

The enforcement action from NHSTA against GM included an agreement that the automaker will pay a $35 million fine, the maximum allowed by a federal regulatory agency and representing the single highest civil penalty amount ever paid as a result of a NHTSA investigation of violations stemming from a recall.

Also part of the agreement set forth in a consent order signed with NHTSA. The agency ordered GM to make significant and wide-ranging internal changes to its review of safety-related issues in the United States, and to improve its ability to take into account the possible consequences of potential safety-related defects. GM will also pay additional civil penalties for failing to respond on time to the agency's document demands during NHTSA’s investigation. Auto Remarketing’s complete report on that development is available here.

Eric Ibara, director of residual values for Kelley Blue Book, shared his assessment of what the NHTSA penalty against GM means.

“The announcement by the Department of Transportation is a statement that new rules are being enforced by the new sheriff,” Ibara said. “This has been known by the auto manufacturers as an unusually high volume of recalls to have already occurred this year.”

Like Dominique, Ibara credited GM management for the moves made since Barra took control of the OEM back in January. 

“Mary Barra and her team have implemented structural changes to ensure this never happens again, and so far, vehicle values for GM models appear to be unaffected,” Ibara said.

“Sales are more mixed as GMC and Buick are up year-over-year, while Chevrolet and Cadillac are not. This is likely the result of new product launches within each brand, and time will tell if this disaster affects the GM brands in the long term,” he went on to say.

Dominique indicated TrueCar and ALG analysts are keeping a close watch of the situation involving GM, too. He remembered “some pretty quick changes on both the retail and wholesale value,” when Toyota became entangled in the unintended acceleration recalls. He noted that the vehicles involved in the ignition switch problem no longer are made by GM, creating a different set of circumstances.

“On the used-car side, we’re not seeing a reduction in values,” Dominique said. “We attribute that to a certain degree to the fact that most of this is with defunct brands and model names. The Cobalt doesn’t exist. Pontiac and Saturn don’t exist. It seem to us at least what we’re seeing on the wholesale market that not seeing a lot of people change their behavior for the other GM brands based on the recall.”

Meanwhile to keep the value as high as possible for those recalled vehicles still in operation, Jeff Boyer, vice president of global vehicle safety, who is assigned to integrate safety policies across the company offered an update on Friday on when replacement ignitions might be available.

"Given that the ignition switch was in very limited production for several years, GM’s supplier, Delphi, increased production, pulled machinery out of storage, and found new suppliers for some of the part components. The manufacturing process is now up and running; moreover, GM and Delphi have set up an enhanced quality assurance process to ensure quality and consistency of the final part," Boyer said.

"Parts production is running seven days a week in multi-shift operations," Boyer continued in a post on GM's blog FastLane. "We are buying new machinery and equipment to make parts quickly.  We are working with Delphi to get two additional production lines up and running this summer. Our plan is to produce enough repair parts by October to fix the majority of the vehicles impacted by the ignition switch and ignition cylinder recalls."