Recall woes continue at America's largest automaker, General Motors (NYSE:GM). It's difficult to believe that the situation could get worse than the controversial ignition switch recall that was linked to at least 13 tragic deaths, but the number of recalls being issued by GM keeps moving higher. Just today General Motors announced an additional five recalls to the list, which has brought the total number of recalls to 18 this year -- a year I don't have to remind you isn't even halfway over. Here are the details, General Motors' response, and what it means for investors in the second quarter.
Devil in the details
General Motors' announcement today of an additional five recalls will cover nearly 2.7 million cars and trucks to fix problems with headlamps, windshield wipers, brake lights, and power brakes. Here's a snippet from General Motors press release regarding vehicle specific details:
- 2,440,524 previous generation passenger cars for tail-lamp malfunctions
- 111,889 previous generation Chevrolet Corvettes for loss of low-beam head lamps
- 140,067 Chevrolet Malibus from the 2014 model year for hydraulic brake booster malfunctions
- 19,225 Cadillac CTS 2013-2014 models for windshield wiper failures
- 477 full-size trucks from the 2014 and 2015 model years for a tie-rod defect that can lead to a crash
How it all adds up
This recent onslaught of vehicle recalls has brought the total tally from General Motors' worldwide recalls this year to more than 11 million vehicles.
Through four and a half months of 2014, General Motors has recalled nearly six times the number of vehicles it had been recalling annually in recent years. From 2009 to 2013, General Motors averaged 19 safety recalls totaling 1.8 million vehicles, according to Automotive News.
According to the Associated Press, General Motors' recalls have single-handedly put the U.S. automotive industry on pace to break the record of 30.8 million recalled vehicles in one year, set back in 2004.
What it means
Although the latest recall is another blow to investors, it's not entirely unexpected. After the attention focused on the initial and highly controversial recall, GM will likely get out in front of any potential problems that could lead to other possible recalls this year.
"We have redoubled our efforts to expedite and resolve current reviews in process and also have identified and analyzed recent vehicle issues which require action. These are examples of our focus to surface issues quickly and promptly take necessary actions in the best interest of our customers." said Jeff Boyer, vice president of GM Global Vehicle Safety, in a press release.
In the first quarter General Motors took on a large $1.3 billion charge for costs associated with the recalls, and investors can expect another charge in the second quarter from this new round of recalls, though it should be substantially less. Currently, General Motors expects a charge of up to $200 million in the second quarter, but investors likely don't need a reminder that last quarter GM's initial estimate for the charge started at around $350 million before nearly quadrupling.
While the $200 million charge won't threaten the vast majority of profits as the charge did last quarter, investors are wondering if GM opted to take the full $1.3 billion charge in the first quarter, rather than spread it out throughout the year, because it foresees additional charges popping up. It's a valid question, and one that investors should keep an eye on as the year progresses.