General Motors Accused of Late Recall

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Product recalls are the precautionary steps taken to avoid accidents due to any fault in a vehicle. General Motors Co. (GM) has been accused of making a delay in recalling Chevrolet Cobalt and Pontiac G5 cars as the problem was allegedly detected in 2004, before the launch of the 2005 Chevrolet Cobalt. However, the automaker announced the recall on Feb 13, 2014.

General Motors has recalled 778,562 Chevrolet Cobalt and Pontiac G5 compact cars of model years 2005 to 2007 in North America. Among the recalled cars, 619,122 were sold in the U.S., 153,310 in Canada and 6,130 in Mexico. The recall will rectify faulty ignition switches which may lead to an abrupt shutdown of the engine, causing near-fatal crashes.

There have been reports of five frontal-impact crashes and six front-seat fatalities caused by collisions due to this problem. All the crashes occurred off-road at high speeds. There are also reports of 17 other crashes which had some frontal crash impact and non-fatal injuries.

General Motors initially attempted to avoid a recall by issuing Technical Service Bulletins for the problem. The bulletin advised putting an insert into the ignition switch of the Chevrolet HHR and Cobalt, Pontiac Solstice and G5 and Saturn Sky and Ion vehicles.  Lawyer Lance Cooper has also accused General Motors of not addressing the ignition switch defect in vehicles other than Chevrolet Cobalt and Pontiac G5. The lawyer is representing a woman who was killed in a Cobalt, which crashed due to this problem.

Lawfully, the automakers are supposed to alert the NHTSA about any safety concern in vehicles within five business days of recognizing the problem. The maximum fine for late reporting currently stands at $35 million.

Earlier, automakers like Ford Motor Co. (F) and Toyota Motor Corp. (TM) have been fined for late recalls. In 2013, Ford had to pay a $17.4 million fine for a late recall of Ford Escape SUVs with defective gas pedals. Toyota also paid a lump sum fine for delayed reporting of safety issues in vehicles.

Currently, General Motors carries a Zacks Rank #5 (Strong Sell). Tesla Motors, Inc. (TSLA), with a Zacks Rank #1 (Strong Buy), is a better-ranked automobile stock worth considering.

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