GM Expands SUV Recall - Analyst Blog

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General Motors Company ( GM ) expanded its 2012-late Aug recall of 249,260 units of midsize sport utility vehicles (SUVs) by 231,000 units after receiving more reports of vehicle fires and minor injuries related to potential fire hazard led by an electrical short in the vehicles. However, most of the complaints (58 vehicle fires and 11 minor injuries) are related to vehicles in the original recall.

The recall covers Chevrolet Trailblazer and GMC Envoy SUVs as well as Buick Rainier, Saab 9-7X and Isuzu Ascender SUVs, all from the 2006-2007 model years. Of the total 480,000 vehicles, about 443,000 units are recalled in the U.S.

In a filing with National Highway Traffic Safety Administration (NHTSA) in Aug last year, GM revealed that a possible electrical short could affect power windows and door locks and lead to fire in severe cases.

Currently, NHTSA stated that the vehicles could catch fire even when they are not in motion. As a result, it has advised the vehicle owners to park their vehicles outside. The agency also revealed that the defect is caused by leakage of water into the driver's side door, which could corrode a circuit board. This could result in electrical short and overheating, ultimately leading to smoke or fire.

Recently, General Motors announced recall of 1,627 units of its recently launched 2014 Chevrolet Impala and 2013 Cadillac ATS and XTS sedans due to an electrical fault in the brake lamps and the cruise control. The automaker launched both the vehicles in 2012.

General Motors revealed that the brake lamps in some vehicles may flash even when the brake pedal is not applied. The problem could also cause the cruise control to disengage. The faulty signal of brake lamp could create false alarm of emergency braking to the following driver, resulting in a crash.

Automotive safety recalls were brought into focus by media after Toyota Motors ' ( TM ) announcement of the largest-ever global recall of 3.8 million vehicles in September 2009, triggered by a high-speed crash that killed 4 members of a family. Later on, a string of recalls has led Toyota to face numerous personal injury and wrongful death lawsuits in federal courts.

The Transportation Department of U.S. slapped a fine of $17.35 million on Toyota due to late response regarding a defect in its vehicles to safety regulators as well as late recall of those vehicles. According to the department, it was the maximum allowable fine under the law for not initiating a recall in a timely manner. The latest fine added to $48.4 million imposed by the U.S. government on the company in 2010 due to late recall of millions of defective vehicles.

General Motors, a Zacks Rank #3 (Hold) stock, reported a 28.0% fall in earnings to 67 cents per share in the first quarter of the year from 93 cents in the same quarter of 2012 (all excluding special items) due to lower earnings generated from the company's all geographic operations except Europe. Despite this, the automaker's earnings exceeded the Zacks Consensus Estimate by 11 cents per share.

Net earnings fell 31.3% to $1.1 billion from $1.6 billion in the first quarter of 2012. Including net loss from special items, earnings were $0.9 billion or 58 cents per share in the quarter compared with $1.0 billion or 60 cents a year ago.

Revenues in the quarter slid 2.4% to $36.9 billion, despite a 3.6% rise in retail unit sales to 2.4 million vehicles globally. It was higher than the Zacks Consensus Estimate of $36.4 billion.

Few stocks that are performing well in the broader industry where GM operates include Toyota Motor with Zacks Rank #1 (Strong Buy) as well as Honda Motor Co. ( HMC ) and Peugeot S.A. ( PEUGY ), both with Zacks Rank #2 (Buy).



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: GM , HMC , PEUGY , TM

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