Chevy costs run deep

GM can find small comfort in Toyota's ride

General Motors can find some small comfort in Toyota's recall ride. Before Chief Executive Mary Barra was hauled up to Capitol Hill on Tuesday, the US automaker summoned more vehicles back into the shop and doubled the estimated cost of fixing safety issues in the first quarter. Toyota's expensive accelerator fiasco suggests GM's costs will probably rise from here but ultimately the financial fallout should be manageable. Culture may be the harder repair.

The problems that afflicted Toyota from 2009 to 2011 have cost at least $3.2 billion so far. That includes the $1.2 billion Toyota agreed to pay last month to settle a Department of Justice probe, $1.1 billion in recall-related expenses that Toyota estimated in 2010 and roughly $900 million of lost sales. Omitted is the cost of ongoing civil litigation and harder-to-measure items like any possible damage to Toyota's reputation. The sum is nevertheless a safe starting point for GM.

To date, Toyota's recall has cost it 1.5 per cent of 2013 sales. If GM's experience is similar, its costs before civil litigation would amount to about $2.3 billion, or three times the upwardly revised figure GM just released as an estimated first-quarter charge.

There are some important differences to keep in mind. While Toyota's recall involved more cars, its accelerator problem also may have caused less than half as many fatalities. Assume GM's costs increase in proportion with the death toll, currently estimated at 13, and exclude private lawsuits, and the cost might exceed $7 billion. That would represent about five per cent of the Chevy maker's 2013 sales.

It would sting for sure but since bankruptcy helped GM's balance sheet and may shield the company from some liability, the amount could be manageable. There probably will be other costs to consider, too, though. One is higher capital expenditures. Toyota, for example, committed to invest $50 million over five years on a new US safety lab. Tougher engineering rigor and recall-happy management may also increase the overall tab.

During her congressional testimony, Barra emphasised that GM had moved "from a cost culture after the bankruptcy to a customer culture." That suggests she understands the perception that GM may have skimped its way into its current troubles. The company's real cost could be completing the transformation.