General Motors Company Takes a $1.3 Billion Bullet for the Automotive Industry

General Motors CEO Mary Barra testifying before the Senate subcommittee. Source: General Motors.

What the heck is going on with the automotive industry? It seems as though not a day passes without another massive recall announcement. General Motors' (NYSE: GM  ) ongoing debacle regarding 2.6 million vehicles with faulty ignition switches that could flip to the off position and cause a car to lose power is dominating the headlines. The technical fault is linked to at least 13 tragic deaths, and General Motors is being investigated for possible wrongdoing. 

However, have you heard about Toyota's (NYSE: TM  ) recall of nearly 6.4 million vehicles worldwide? What about Fiat Chrysler Automobiles'  (NASDAQOTH: FIATY  ) recall of nearly 868,000 vehicles across the globe? Or Ford's (NYSE: F  ) recall of nearly 435,000?

The situation playing out in the automotive industry right now has General Motors taking a bullet for the automotive industry, and rightfully so.

GM's highly public and highly humiliating recall of millions of vehicles, in which the fatal problem was identified years ago, is almost certainly going to call more attention than any other current vehicle recall. The rest of the industry is taking advantage of the situation by announcing their recalls while all eyes are firmly fixed on GM.

In case you missed details on the rest of the auto industry's recalls, here's a quick recap.

Toyota announced last week a massive recall of 6.39 million vehicles for a range of problems. The recall covers five separate problems, ranging from faulty airbags to defective windshield wipers, and includes about 2.34 million vehicles in North America. While the overall number of affected vehicles is significantly larger than the number in General Motors' initial and highly controversial recall, Toyota is so far unaware of any crashes, injuries, or deaths connected to the vehicles, therefore this story is much less of an attention grabber. 

Earlier this month, Chrysler recalled 867,795 Jeep Grand Cherokees and Dodge Durangos to install a shield that would protect brake boosters from water corrosion, according to Bloomberg. Ford has also recently announced recalls of nearly 435,000 vehicles for rusting frame parts and faulty seats. So what do all of these recalls mean for GM and the automotive industry?

What to expect
General Motors has also announced additional recalls, pushing the total number of vehicles past 6 million worldwide. America's largest automaker might as well get it all out in the open now.

Directly, General Motors is going to take a $1.3 billion charge due to the recall in the first quarter, which is $1 billion more than the original estimate. Biting that bullet threatens to consume all of the company's first-quarter profit, and again, rightfully so. 

That might only scratch the surface of the true cost to GM. We have to consider negative effects on the company's future sales and brand image, which has already been battered by GM's bankruptcy. Furthermore, the competition can largely avoid negative results from their own recalls by essentially hiding behind General Motors' troubles. Perhaps these are all deserved punishments considering that GM appears to have made a very poor decision more than a decade ago that it was cheaper to fight in court rather than fix product defects. 

This recall saga is far from over, and could easily get worse for General Motors as the federal investigations continue. As for the automotive industry as a whole, don't be surprised if these aren't the last recall announcements you hear about over the next few months -- or maybe don't hear about, thanks to GM's massive debacle.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 18, 2014, at 12:28 PM, Webuchadnezzar wrote:

    You make GM sound somehow noble or selfless in all this.

    What a crock.

    If they could shove someone else into the media spotlight they would do it in a heartbeat.

    Stop kissing up to this awful company.

  • Report this Comment On April 18, 2014, at 1:19 PM, TMFTwoCoins wrote:

    What? That wasn't the intention of this article at all...

    "-- or maybe don't hear about, thanks to GM's massive debacle."

    "these are all deserved punishments considering that GM appears to have made a very poor decision more than a decade ago that it was cheaper to fight in court rather than fix product defects."

    "Biting that bullet threatens to consume all of the company's first-quarter profit, and again, rightfully so."

    Maybe you misunderstood or I didn't make it clear enough. GM has screwed up big time.

  • Report this Comment On April 18, 2014, at 2:41 PM, funfundvierzig wrote:

    Advocates and apologists for GM Management have insisted at various sites over the internet that this recall to cure the lethally defective switch is simply a regular Industry recall, the bad news of which is only "temporary". Absolutely not! This recall of 2.6 cars was forced upon GM's truculent and criminally evasive Management after more than a decade of conspiring to cover it up, to defraud millions of GM customers. This massive scandal has indelibly stained the reputation of this Company and the Chevrolet brand.


  • Report this Comment On April 18, 2014, at 3:10 PM, funfundvierzig wrote:

    Not helping the smashed image of General Motors is the continual crude and clumsy lying of GM Chieftess MARY emBARRAssment. Pretending to be the innocent ingenue and claiming with a straight face on Capitol Hill she had "no knowledge" of the lethally deficient ignition switch in 2.6 million of her cars until mere weeks ago would be like current BP CEO Robert Dudley claiming he had never heard of the the deadly BP explosion and massive oil spill in the Gulf of Mexico until January 31, 2014!


  • Report this Comment On April 18, 2014, at 7:07 PM, ideaatm23 wrote:

    It would be much better for us all if these companies were made public so none of this information would be kept secret, they can get a nominal design fee but have no involvement in working there at all, same for anything we need thats dangerous, dangerous being more than 5 ppl could die in the worst case scenario.

  • Report this Comment On April 18, 2014, at 8:12 PM, Gearhead wrote:

    I have been a GM line tech for over 25 years and I have never replaced an ignition switch in an A body for any reason. I agree GM has problems, but all auto manufacurers do. If someone can't react to an emergency situation, maybe they shouldn't be driving. A cars engine dieing shouldn't be that big of a problem. Shift to neutral, try to restart the engine. If it won't refire, coast to the side of the road and call for help. I think a lot of the overblown attention for this recall is because of people not taking responsibility for their inability to handle an emergency and ambulance chasing lawyers are only to happy to jump on the bandwagon. High performance cars (which a stock Cobalt isn't) and low performance drivers have been a problem on our roads for years.

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Daniel Miller

As a Motley Fool Industrial Specialist, I use my marketing and business background in the automotive industry to evaluate major automakers and other large industrial corporations. Follow me on twitter for tweets about stocks, cars, sports, and anything I find amusing.

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