General Motors Gets Dinged

Sign up for smart news, insights, and analysis on the biggest financial stories of the day.

Last week, General Motors announced it will launch a car insurance product.

Hopefully the auto giant has insurance for this – the company announced yesterday it will recall seven million vehicles to replace faulty airbags.

The Backstory

Since 2013, over 63 million U.S. vehicles outfitted with Takata airbags have been recalled in what has been described as the “largest and most complex [auto recall] in U.S. history.”

Propellant Problem: The chemicals (known as propellants) used to fill many Takata airbags have the potential to degrade over time when exposed to heat and humidity. In some tragic cases, excessive pressure caused the metal canister to explode and shrapnel to injure or kill passengers. Globally, more than two dozen have been killed by Takata airbags.

For over four years, GM has argued that it should not be forced to recall its vehicles – citing a superior design that insulated the Takata airbags from extreme temperatures. In a 2019 petition, GM said no explosions had occurred in 67,000 airbag deployments.

The Ruling: The National Highway Traffic Safety Administration ruled yesterday the airbags in GM models (including the Cadillac Escalade and Chevrolet Tahoe) pose the same hazards as Takata airbags in other recalled vehicles. GM said it disagreed with the determination but will “abide by NHTSA’s decision and begin taking the necessary steps.”

  • Jason Levine, executive director of the nonprofit Center for Auto Safety, said it was a “win” for GM owners who for years didn’t know “whether they were driving with an unexploded hand grenade in their steering wheel.”

The Fallout

Refurbishing 6 million vehicles isn’t cheap. The automaker said the ruling will cost $1.2 billion, equivalent to one-third of its net income this year.

Drivers can check to see if their vehicles have been recalled by going to https://www.nhtsa.gov/recalls and keying in their 17-digit vehicle identification number.

The Takeaway:

Shareholders were unfazed – GM stock rose 4.5% in M0nday trading – its highest point in over a year.