Is U.S. Fine for Ignition Switch Recall Good News for GM?

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At 11:15 a.m. Friday morning, the U.S. Department of Transportation plans to make what it calls a “major announcement” related to its investigation of General Motors Co. (NYSE: GM) and the company’s belated recall of some 2.6 million vehicles for a defective ignition switch that has been linked to at least 13 fatalities.

The National Highway Traffic Safety Administration (NHTSA) began assessing a fine of $7,000 a day against the carmaker for failing to meet an April 3 deadline to respond to the agency’s questions related to the investigation. GM is conducting its own internal probe and has said it will not respond to the NHTSA’s demand until its own investigation is complete.

GM faces a maximum fine of $35 million if the NHTSA investigators find that it failed to notify the agency within five days after learning of the defect. The New York Times published a report in early March claiming that beginning in 2003 the NHTSA had received an average of two complaints a month related to the defective ignition switch. The NHTSA declined to investigate because “there was not enough evidence of a problem to warrant a safety investigation.”

If, as is likely, Friday’s announcement reveals that the Department of Transportation and GM have reached a consent decree, that would be good news for GM. First of all, the maximum fine allowed is relatively small and, more importantly, an agreement would remove one uncertainty related to the ignition switch recall.

Year to date, GM’s shares are down about 15%. After opening Friday morning at $33.75, they were down nearly 2%, but the stock has recovered somewhat to $33.96, in a 52-week range of $31.13 to $41.5.

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