General Motors Company's Recall Will Cost the Company in Many Ways

Shares of General Motors have trended lower since the announcement of its recall, which could cost the company much more going forward.

Mar 18, 2014 at 3:00PM

The Dow Jones Industrial Average (DJINDICES:^DJI) was trading 106 points higher, or 0.66%, by midafternoon after U.S. housing starts decreased by a seasonally adjusted 0.2% in February, which was better than the expected drop. The housing industry plays a huge role in the strength and recovery of the U.S. economy; while mortgage rates have dropped a bit, and spring is approaching, most homebuilders remain downbeat regarding home sales expectations over the next six months. A faster than expected increase in housing construction and home sales would provide a welcome boost to the economy. Beyond the housing industry, here are some industrial company's making headlines today.

Inside the Dow, Boeing's (NYSE:BA) share price has stalled so far in 2014 after soaring nearly all of last year. With its backlog of orders at a record $441 billion, or nearly five times estimated sales for 2014, the aviation giant is working to accelerate production to improve delivery counts.


Boeing kicked off expansion of its 737 Commercial Delivery Center (CDC) at Boeing Field in Seattle. Source: Boeing.

In a step in the right direction, Boeing yesterday announced an expansion of its 737 Commercial Delivery Center in Seattle which will support increased aircraft deliveries. Boeing plans to increase production of its 737 from 42 planes per month as of April to 47 per month in 2017 -- a move that will help the company cash in faster on its massive backlog of orders.

Outside the Dow, shares of General Motors (NYSE:GM) have been trending lower after America's largest automaker announced a recall of 1.76 million vehicles globally last month. At least 12 fatalities have been linked to the defective ignition switch that is causing some airbags to fail to deploy in the event of a wreck. The first and foremost priority for General Motors' leadership is to fix the defect and commit to making sure its car buyers are safe going forward.

According to Automotive News, two analysts have estimated the cost of recall repairs to be less than $100 million, but that will likely fall far short of expenses added by many lawsuits and GM's further damaged brand image. This has investors of General Motors concerned regarding customer safety, as well as management's focus being pulled in a new direction.

"Indirectly, another cost of the recall is the time that senior management will spend focusing on it," wrote Stephen Brown, an analyst with Fitch Ratings in Chicago, according to Automotive News. "GM currently has several significant restructuring actions under way globally, as well the launch of key new vehicles. The recall is likely to divert some management attention away from these other important activities at a critical time for the company. That the company's top senior leaders are relatively new to their positions could add to the challenges."

As details continue to emerge this will be a focal point for GM investors and consumers alike. 

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Daniel Miller owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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