General Motors' Recall Debacle Could Offer an Advantage Over Crosstown Rival Ford Motor Company

Source: General Motors.

General Motors (NYSE: GM  ) has essentially been a black eye on the entire automotive industry this year. Its massive recall debacle involving faulty ignition switches led to tragic deaths and millions of recalled vehicles. In fact, it sadly wouldn't surprise me if General Motors held a fresh press conference saying it would recall every single vehicle it has ever made, just to be safe -- that's how bad the situation has become.

However, despite the massive number of recalls, sales of General Motors' vehicles have only driven higher. It should be insane to think that GM's tragic recall could be an advantage over any automaker, but no negative sales effect has yet to surface, so there's actually a silver lining for America's largest automaker.

How bad is it?
To put in context how bad General Motors' recall of epic proportions has been, consider these facts. With half of the calendar year remaining, the automotive industry in the United States has already recalled more vehicles than it has in any other year on record.

The National Highway Traffic Safety Administration reported that vehicle recalls in the U.S. have reached 37.5 million cars this year, far ahead of the record 30.8 million units in 2004. General Motors, by itself, accounts for roughly two-thirds of that total recall figure.

The 37.5 million vehicles recalled by automakers this year in the United States is roughly equal to the number of cars sold since the end of 2011; sales for 2012 and 2013 totaled 14.5 million and 15.6 million, respectively, while sales this year through June have reached 8.1 million. Put another way, those 37.5 million vehicles have been recalled at a pace of nearly 200,000 every single day this year, or more than 8,000 every single hour.

Despite the recalls, where the brunt of negative attention has been directed at General Motors -- and rightfully so -- sales of GM's vehicles have yet to hit as much as a speed bump. Two months ago, in May, General Motors posted its best monthly sales total since 2008, and June's sales were up 9% compared to last year, when adjusted for selling days. Overall, General Motors' sales are up 2.5% this year, despite all the negative attention.

With no consumer backlash in regard to sales, this actually presents General Motors a silver lining around the recall cloud. Every single one of General Motors more than 25 million vehicles recalled means a potential visit from the consumer to a GM dealership, as repairs for the ignition defect are free. That's essentially more than 25 million fresh opportunities to upsell consumers from an undesirable vehicle to a newer, and more profitable, vehicle.

Paul Stanford, president of Les Stanford Chevrolet-Cadillac in Dearborn, told the Detroit News just that in an interview in an interview Monday:

That is an opportunity ... How do you buy that? You really can't buy that. On the one hand, it's been a curse to us. On the other, it's been a blessing.

According to a GM spokesman, roughly 5,000 customers have opted for a $500 credit incentive for owners of recalled vehicles to switch to a new GM ride. That's merely 1.7% of the 296,000 vehicles that have been repaired by the last week of June; but consider what that means if the percentage holds true as the repair process goes on: 1.7% of more than 25 million vehicles is potentially 425,000 new sales. Put another way, those potential sales are the equivalent of 75% of General Motors' May and June sales combined.

Bottom line
General Motors' recall debacle has been tragic and a major black eye on the company, its investors, and the automotive industry; yet, the company has a ray of hope from incremental foot traffic in dealerships, and thus, a potential rise in sales through the back half of 2014.

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  • Report this Comment On July 10, 2014, at 10:26 PM, Jack43NY wrote:

    While a lot of your comments are valid and the criticism of GM, I don't think the media is completely understanding what is happening with the large number of GM recalls. As you may remember, in 2010 Toyota recalled a significant number of vehicles due to unintended acceleration that resulted in 89 deaths ( according to CBS ). Subsequently, a short time ago, they settled a criminal negligence charge from the US government for $1.3 Billion. Now think about this if you were GM management. Wouldn't you be inclined to recall everything where there is a chance something could go wrong that would result in someone getting hurt or killed. I think the Toyota situation with the Criminal negligence fine is going to result in a lot more recalls in the future. Has GM overreacted? Who knows but I think the media should look at what is happening in a bigger perspective

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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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