By Ben Klayman
DETROIT (Reuters) - U.S. safety regulators have opened an investigation into whether General Motors Co (GM) reacted fast enough in its recall of more than 1.6 million cars over an ignition-switch defect linked to 13 deaths in crashes.
The issue could prove costly to GM as the automaker faces a potential fine from the U.S. National Highway Traffic Safety Administration, the cost of replacing the ignition switches in question and the possibility of costly lawsuits.
"The National Highway Traffic Safety Administration has opened an investigation into the timeliness of General Motors' recall of faulty ignition switches to determine whether GM properly followed the legal processes and requirements for reporting recalls," the safety agency said in a statement released on Wednesday.
GM, which went through a bankruptcy restructuring in 2009, could face a maximum fine of $35 million if it failed to notify NHTSA within five days of a recall after learning of a vehicle safety defect.
The company did not say how much the recall would cost, but LMC Automotive analyst Jeff Schuster said the biggest cost to the automaker could result from the flurry of lawsuits likely to be triggered by the defect and the company's actions.
Toyota Motor Corp <7203.T> last year paid more than $1 billion to resolve economic-loss claims related to the recall of millions of vehicles for unintended acceleration. The Japanese automaker is still trying to settle personal-injury lawsuits.
GM's recall was to correct a condition that may allow the engine and other components, including front airbags, to be unintentionally turned off.
GM previously said the weight on the key ring, road conditions or some other jarring event may cause the ignition switch to move out of the "run" position, turning off the engine and most of the car's electrical components.
NHTSA urged owners to follow GM's recommendation to "use only the ignition key with nothing else on the key ring" when operating the vehicle and seek the repair as soon as replacement parts become available. GM said the initial replacement parts will be available in early April.
NHTSA said it will monitor the recall and take additional action as needed. Up to now, Toyota Motor Corp <7203.T> and Ford Motor Co (NYS:F) have paid the largest fines of more than $17 million to NHTSA for delaying recalls.
On Tuesday GM more than doubled its recall related to the issue, saying it was "deeply sorry" and that the company was reviewing its recall process, acknowledging it was not as "robust as it should have been.
GM said then that it was aware of 31 reported incidents, including 13 front-seat fatalities, involving frontal crashes in which the condition may have caused or contributed to the front airbags not deploying.
On Thursday, GM Chief Executive Mary Barra declined to address the issue at an event in Boston. But the company said in a statement: "We deeply regret the events that led to the recall and this investigation. As our detailed chronology indicates, we intend to fully cooperate with NHTSA and we welcome the opportunity to help the agency have a full understanding of the facts."
GM previously said all the crashes occurred off-road and at high speeds, where the probability of serious or fatal injuries was high regardless of airbag deployment. Failure to wear seat belts and alcohol use also were factors in some cases, the company said.
Clarence Ditlow, executive director of the Center for Auto Safety, a Washington advocacy group that pushed for the wider recall, said the whole recall system is broken. "GM doesn't get a get-out-of-jail-free card just because NHTSA did a sloppy job," he said.
In light of GM's bigger recall, U.S. Sen. Edward Markey, a Democrat from Massachusetts, on Wednesday called on NHTSA to require automakers to provide detailed information to the agency when they become aware of accidents involving deaths. He said GM was aware of fatal accidents in Maryland and Wisconsin in 2005 and 2006 involving safety issues and notified dealers, but did not recall the vehicles involved.
"The current early warning reporting system is too little, too late," he said in a statement. "We need to overhaul the early warning reporting system so that NHTSA is not looking at auto defects through a rear-view mirror."
David Strickland, who was head of NHTSA from January 2010 until December 2013 and oversaw NHTSA's investigation of Toyota, said it was too soon to blame NHSTA for failing to act sooner.
Strickland, now a partner at Venable LLP, a law firm that represents the auto industry, said the agency's probe will focus more on the timeliness of GM's response to the problem than on the number of deaths or injuries related to the ignition issue.
"They'll try to figure out when the manufacturer knew it had a defect that posed a risk to safety," he said.
Kelley Blue Book senior analyst Arthur Henry said recalls typically do not hurt automakers' brand image. GM's recall and the media fervor around it is reminiscent of what Toyota went through in 2009 and 2010, he said, when it recalled more than 19 million vehicles globally related to unintended acceleration.
"Toyota has shown that a brand can recover from an incident like this and what may help GM is the fact that the majority of the models recalled are discontinued," he said. "This may dissolve any negative projection toward its new products."
Earlier this month, GM said it was recalling 778,562 Chevrolet Cobalt and Pontiac G5 compact cars from model years 2005 through 2007. On Tuesday, it added 842,103 Saturn Ion compact cars from 2003 through 2007 model years, Chevy HHR mid-sized vehicles from 2006 and 2007, and the Pontiac Solstice and Saturn Sky sports cars from 2006 and 2007.
A spokesman for GM's Europe unit, Opel, said the 2007 Opel GT Roadster, which was based on the same platform as the Solstice and Sky, also is affected, adding around 2,300 more vehicles to the recall.
GM no longer makes any of the affected cars.
It previously said it is working with suppliers to increase production of replacement parts. GM said the ignition switch torque performance may not meet company specifications. The involved parts were made in Mexico, according to documents previously filed with NHTSA.
Of the cars recalled, 1,367,146 vehicles are in the United States, 235,855 are in Canada, 15,073 are in Mexico and 2,591 were exported outside North America, according to GM.
GM said in documents filed with NHTSA that it first learned of the issue in 2004, around the time of the 2005 Cobalt launch with a report of at least one incident where a Cobalt lost engine power because the key moved out of the "run" position.
The company later issued a bulletin alerting dealers to advise owners of the issue.
In March 2007, NHTSA officials alerted GM to a fatal Cobalt crash from July 2005 in which the front airbags did not deploy, according to the NHTSA documents. While GM's legal department had opened a file on that crash in September 2005, GM employees meeting with NHTSA in 2007 were unaware of the crash.
In late July 2011, a meeting of GM legal staff and engineers led to the an investigation of crashes in which airbags did not deploy, according to the NHTSA documents.
(Additonal reporting by Bernie Woodall and James B. Kelleher in Detroit, Eric Beech in Washington, Richard Valdmanis in Boston and Edward Taylor in Frankfurt; Editing by Chizu Nomiyama)