Recall Woes Continue for General Motors Company

Last week, General Motors (NYSE: GM  ) announced the recall of another 2.7 million vehicles. While the vehicles are unrelated to the infamous ignition switch scandal, it's still not a headline that frustrated investors want to see. 

Recall details
The recall count is now over 11 million vehicles from General Motors alone. My problem is this: I really want to like General Motors. I do. I like CEO Mary Barra, and I do think she's doing the right thing. 

But there are just too many black eyes right now for me to want to buy the stock. The additional 2.7 million vehicle recall is for a slew of issues, ranging from faulty tie-rods on a few hundred trucks to nearly 2.5 million vehicles that have corrosion issues in the brake light wiring. 

Although there are a lot of vehicles affected by the recall, the damage is minuscule compared to that of the 13 deaths related to the ignition switch issue. There have been -- ironically -- 13 reported accidents and two injuries, but thankfully, no fatalities in relation to the recent recall. 

The company also announced that it will take a $200 million charge in the second quarter in regard to this specific recall. While $200 million doesn't seem like too much, especially when compared to Ford's  (NYSE: F  ) recent $400 million recall charge, it's just one more expense in a seemingly never ending list. 

Last month, we examined General Motors' expenses, which are featured in this chart:

Fine or Cost

First-Quarter Estimated Charges


Total recalls

$1.3 billion

Venezuelan currency swings

$400 million

Restructuring costs

$300 million


Total first-quarter charges

$2 billion

In all, roughly $2 billion in charges were taken in the first quarter. Those expenses just increased 10%, with the latest charge. That's rather significant. 

More looming expenses
With the stock around $34, a low valuation and a dividend yield near 3.5%, shares of General Motors do have some appeal. But the looming announcement of victims' compensation could be a big charge, as well as the likely $1 billion or more fine that's coming from the Department of Justice. 

In the wake of the ongoing ignition switch scandal, the automaker hired Kenneth Feinberg to organize the victims' compensation fund. He's responsible for orchestrating funds for victims involved in the September 11th attack, the Boston Marathon bombing and the British Petroleum oil spill in the Gulf of Mexico. 

So the likelihood that General Motors has a cheap tab to pay seems relatively minuscule. Investors still have a lot to worry about when they add in the fact that the Department of Justice -- which recently fined Toyota Motors $1.2 billion for its negligence to safety -- is unlikely to go easy on General Motors. 

Taking a pass on the stock... for now
For these two reasons alone, which could easily amount to more than the current $2.2 billion in estimated charges the company has already announced, I'm avoiding the stock. 

I do have to give credit to Barra, because in her effort to "clean house" and get as much out in the open as possible, she's setting the company up for long-term strides in the right direction. Remember, she walked into this situation, she didn't create it. 

Considering that we're only in May, there's still plenty of bad news that could surface at General Motors, and I think that's when an opportune time to buy the stock may present itself. I'm looking for the price to fall into the range of $30-$32. 

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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 May 26, 2014, at 10:42 AM, funfundvierzig wrote:

    Folks, these 30 recalls of cars and trucks (which now number a staggering 16 million world-wide) are not voluntary, not offered by a suddenly customer-focussed, enlightened Management. No. The recalls were constructively forced on GM's evasive and secretive Management by discovery in litigation, regulatory investigations, and the klieg lights of the media in action.

    The belligerent and beleaguered bosses of GM are running scarred and scared, no doubt about it. They would have been delighted to have maintained dark secrets and deceptive cover-ups on their people-killing parts and faulty designs for another decade, unmolested by the forces of decency or honesty.


  • Report this Comment On May 26, 2014, at 8:33 PM, funfundvierzig wrote:

    Folks, any corporation whose PR operatives and viciously vindictive supporters have to resort to systematic harassment and heckling of independently-speaking investors at various internet sites is one sick, unethical operation. Such is the corrupt General Motors in the spring of 2014! ...funfun..

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Bret Kenwell

At The Motley Fool I cover consumer goods and industrial companies, and mainly the automakers. I am a long-term investor looking for companies with sustainable and above average growth. I also like to uncover value, dividend-paying companies. Follow me on Twitter @BretKenwell

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