The U.S. Justice Department 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. GM shares fell the most in two years.
The U.S. Attorney's office in the Southern District of New York is leading the investigation. James Margolin, a spokesman for that office, declined to comment, as did Emily Pierce, a Justice Department spokeswoman in Washington.
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 LLC analyst, said in a note to investors yesterday.
Shares of GM tumbled 5.15 percent to $35.18, its worst one-day drop at the close since March 2012.
Company documents show that between 2004 and the decision to initiate the recall, 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.
The stock has now slid 14 percent this year, and the recall is emerging as the first major test for new chief executive Mary Barra, who was promoted two weeks before GM decided Jan. 31 to implement the recall.
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 GM 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 NHTSA in a 27-page order issued last week.