General Motors Company: 2 Major Points Signaling That U.S. Consumers Don't Care About Recalls

Despite recalling millions and millions of vehicles, General Motors has yet to feel the pinch in its monthly sales results.

Jun 18, 2014 at 6:35PM

Toward the end of May and ahead of the monthly sales results, in my article "Will Customers Ultimately Ditch General Motors Company?", I suggested that sales could begin to show signs of weakness when compared to the rest of the sector, due to the increasing amount of recalls and negative headlines about General Motors (NYSE:GM)

In short, I was wrong. In fact, I was completely wrong. Not only have sales of General Motors not declined in the past few months leading up to May, but the automaker did extremely well in the month, as sales rose 13%. 

Here's a look at the sales results in March, April, and May, following the original announcement of the ignition switch recall in mid-February:

Month Sales Growth (year-over-year)
   

March           

7%
April 7%
May 13%

Source: General Motors Sales Release

May's auto sales for General Motors were the best results since August 2008, which really drives home the point that consumers simply do not care about the recalls.

Gm Recalls

Source: MojoMotors (Click to enlarge)

Another telling fact about the recalls
If sales didn't speak enough for the fact that consumers aren't troubled by the recall woes at GM, then this will:

In a study of over 35,000 email leads to car dealerships on MojoMotors.com, only two people asked about a vehicle recall. Two! That's .005 percent! This is interesting because as automakers continue breaking records left and right by recalling millions of vehicles for anything from spiders to electronic issues, shoppers still don't care. 

Of course, you can poke holes in this statistic if you so desired. Perhaps shoppers have considered only a handful vehicles, and did the full research themselves to determine if there has already been a recall on that specific model, (although they could inquire to see if it has been repaired, if one of the models they wanted were on the recall list). 

This statistic is also not exclusive to General Motors, meaning that the several million other vehicles that have been recalled in 2014 are also of little concern. Again, this is not the stat-to-end-all-stats, but it certainly speaks some amount of volume to say that only two out of 35,000 people inquired about recall issues when reaching out to used car dealerships. 

MojoMotors CEO Paul Nadjarian had this to say on the GM recall:

Although the press and industry insiders are outraged by the volume of GM recalls, the average consumer cares more about topics like who is buying the Clippers and what happened at Kim & Kanye's wedding? Recalls are just not a hot topic for the average consumer.

So is this the "all-clear" sign to buy shares?
Some investors have been saying that shares of GM are cheap, valuation-wise, and have been worthy of your investment dollars since Day 1 of the ignition switch recall.  

I have not shared that belief with them. And to be frank, I still do not share that belief. It's not that I do not like the General Motors company, I just do not like shares of General Motors at this time. 

I'll admit, I am less bearish on the stock now that consumers have essentially proven -- both with their inquiries and more powerfully, with their dollars -- that the recalls are not bothersome.

Regardless, I'm hesitant to buy General Motors for one real reason: future risk. 

In "3 Reasons Not to Buy General Motors", I outlined (like the title may suggest) three reasons I'm steering clear of the stock. One of those events has already happened, which was that first-quarter profits would get squeezed. 

The other two negative catalysts, which come in the form of a hefty Justice Department fine and a victim compensation fund, are not going to be cheap. 

Perhaps investors won't really care about those two upcoming events, much like how consumers don't seem to care about the recalls. But I am sticking with the belief that it's better to be safe, than sorry.  

The bottom line
Sales have yet to suffer from the slew of recalls at General Motors, and it appears unlikely that they will in future. 

But those two negative headwinds that I mentioned above are going to be expensive, like probably more than $2 billion expensive (read the article above for more information), and if I'm going to be a buyer of General Motors, I'd rather wait until after that news is out, rather than get in before it's released. 

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Bret Kenwell has no position in any stocks mentioned. 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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