"Login incorrect" message repeating on VM console after kernel update

Hello,
Every time I kickstart a VM and update the kernel I get 'login incorrect' repeating rapidly on the vmware console screen. I can't ssh to the VM during this time and I can't login via the console either. I have tried changing the /etc/pam.d/system-auth:

From:
auth sufficient pam_unix.so nullok try_first_pass
To:
auth sufficient pam_unix.so nullok

So far this is not working.