The Justice Department has started a preliminary investigation into how General Motors Co. handled the recall of 1.6 million vehicles with faulty ignition switches linked to at least 13 deaths, said a person familiar with the probe.
The inquiry is focusing on whether GM, the largest U.S. automaker, violated criminal or civil laws by failing to notify regulators in a timely fashion about the switch failures, said the person, who asked not to be named and isn’t authorized to discuss investigations. GM shares fell the most in two years.
Lawyers in the U.S. Attorney’s office in the Southern District of New York are leading the investigation. Emily Pierce, a Justice Department spokeswoman, declined to comment.
The inquiry comes as House and Senate committees and the U.S. National Highway Traffic Safety Administration are also probing GM’s actions leading to the recall. While the immediate financial impact of the recall is “insignificant,” some hard- to-quantify reputational risk is emerging, Joseph Spak, an RBC Capital Markets analyst, said in a note to investors Tuesday.
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“Remember while this was old (pre-bankruptcy) GM, the consumer won’t differentiate,” Spak said. “It does appear that GM employees have known about the risk for a while, so it does seem there is a failure to act somewhere along the way.”
GM tumbled 5.2 percent to $35.18 at 4 p.m. New York time, its worst one-day drop at the close since March 2012.
The initial recall on Feb. 13 covered 778,562 Chevrolet Cobalts and Pontiac G5s. It was widened less than two weeks later to more than 800,000 additional vehicles. Those include 2003-2007 Saturn Ions, 2006-2007 Chevrolet HHRs, 2006-2007 Pontiac Solstices and 2006-2007 Saturn Skys. Other models affected are the 2005-06 Pontiac Pursuit sold in Canada and the 2007 Opel GT sold in Europe.
NHTSA, whose decision not to investigate the switch failures years ago is also under scrutiny by Congress, is focusing on what steps the automaker took to investigate and rectify engineering concerns and consumer complaints dating back to at least 2004. Detroit-based GM has until April 3 to answer questions posed by the regulator in a 27-page order issued last week.
Company documents show that between 2004 and the decision to initiate the recall, multiple layers of GM engineers and corporate committees analyzed and failed to fix the ignition flaw.
GM has said that heavy key rings or jarring can cause the ignition switches to slip out of position, cutting off power and deactivating air bags. The automaker has linked the defect to at least 23 crashes, including 13 deaths.
NHTSA could fine GM as much as $35 million, which would be the most ever by the U.S., if it finds the automaker didn’t pursue a recall when it knew the cars were defective.
GM’s stock has now slid 14 percent this year, and the recall is emerging as the first major test for new Chief Executive Officer Mary Barra, who was promoted two weeks before the company decided Jan. 31 to implement the recall.
The company first told the public about the recall on Feb. 13 and then expanded it on Feb. 25.
GM has hired former U.S. prosecutor Anton Valukas, who probed Lehman Brothers’s 2008 downfall, to help lead an internal investigation.
Barra pledged to personally take control of overseeing the recall in a March 4 Web posting to employees. “We will hold ourselves accountable and improve our processes so our customers do not experience this again,” she wrote.
Members of the House Energy and Commerce Committee Tuesday asked Barra for documents and field reports related to the recall. Committee Chairman Fred Upton, a R-Mich., said Monday that a hearing will be held in the coming weeks to explore whether GM or NHTSA missed “something that could have flagged these problems sooner.”
“If the answer is yes, we must learn how and why this happened, and then determine whether this system of reporting and analyzing complaints that Congress created to save lives is being implemented and working as the law intended,” Upton said.