Is the Recall Tide Finally Turning for General Motors Company?

GM's sales have held up despite the harsh publicity. Is the tide set to turn for GM?

May 31, 2014 at 2:38PM


GM's unprecedented pace of recalls has mostly focused on its older models, but a few newer ones have been called back as well: The much-praised all-new 2014 Cadillac CTS sedan was recalled earlier this month for a windshield-wiper issue. Source: General Motors Co.

It was another tough week for General Motors (NYSE:GM) as the company endured more withering criticism for its long-delayed recalls -- and as big lawsuits against GM moved forward.

GM is in hot water because it delayed a recall of defective ignition switches for years. The switches in several GM vehicles built between 2003 and 2007, mostly compact cars, can fail in ways that can cause accidents -- and that can cause the cars' airbags to fail to deploy in accidents.

GM acknowledges that at least 13 people have died as a result of the defect; lawyers for accident victims contend that the total is higher. 

But there were some signs this week that GM and its new CEO are finally starting to get a grip on the ongoing scandal. 

A new CEO works to rise to a huge challenge
GM CEO Mary Barra, who took over just weeks before the ignition-switch recall was announced, has received mixed reviews for her handling of the crisis. 

Barra was called to testify before U.S. House and Senate committees back in April, and while her House performance wasn't bad, the Senators subjected her to harsh questioning the next day, during which she came off as evasive and didn't look like a leader.

Barra Before Senate

GM CEO Mary Barra appeared before the U.S. Senate Commerce Science and Transportation Subcommittee in April to address the recall scandal. She spent hours answering harsh questions. Source: General Motors Co.

But Barra has taken some positive steps. Most significantly, GM under her leadership isn't running from the crisis. 

Under Barra, the company issued an unprecedented public apology, it agreed to a pay the biggest fine ever levied by the National Highway Traffic Safety Administration (and to accept NHTSA supervision of its internal safety procedures), and it has hired Kenneth Feinberg, the attorney who managed funds for the 9/11 and Boston Marathon bombing victims, to help GM find a way to do the right thing for victims of the defective switches and their families.

And Barra has completely overhauled the way GM approaches recalls. So far this year, GM has recalled some 15.8 million vehicles in North America, in 29 different recall actions -- an unprecedented number for the General, and a sign that Barra wants to head off any possible future scandals right now.

Despite those actions, Barra has taken a lot of heat. But a big name came to her defense this week: Former GM CEO Dan Akerson, who said he was absolutely certain that Barra had no knowledge of the defect before it was brought to her attention as CEO.

And Forbes published an article this week by its auto-industry expert, Joann Muller, that included an exclusive interview with Barra, and portrayed Barra as a capable leader facing an enormous challenge.

That seems a fair assessment. 

GM's stock has taken a beating during this crisis, but Barra does seem to be steering the company in the right direction -- and using the crisis as an opportunity to accelerate the pace of GM's long-needed cultural change.

And so far, the recall mess doesn't appear to have hurt sales of GM's much-improved new products.

Amid recalls of millions of old products, GM's new products are still selling well
The recalls certainly haven't been good for GM's bottom line. GM took a $1.3 billion hit due to recall-related costs in the first quarter, and it has warned that it'll take another hefty hit to its second-quarter earnings.

But GM didn't post a loss in the first quarter, and it probably won't post a loss in the second quarter -- because its U.S. sales have remained strong.

GM's U.S. sales rose 7% in April, beating both analysts' estimates and old arch-rival Ford (NYSE:F). Sales of GM's new-for-2014 pickups were strong, and GM's average transaction prices were up sharply over year-ago numbers -- a sign that GM is making more money on each sale.

We won't have May's sales totals until Monday, but analysts expect GM to report another good month. expects GM to report a 6.7% year-over-year U.S. sales increase for May, ahead of key competitors like Ford and Honda (NYSE:HMC) -- while TrueCar,com's analysts see GM posting a 6% gain, ahead of the 5.5% gain they expect for the overall U.S. market.

That bodes well for GM's ability to transcend this crisis -- eventually. While the damage to Old GM's reputation has been enormous, New GM has mostly held up. 

If Barra can keep making the right moves, GM might come out of this a healthier and much-improved company. We'll see.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. 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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