GM Recalls Cruze Sedans - Analyst Blog


General Motors Company 's ( GM ) plans to recall 475,418 units of its popular compact Chevrolet Cruze sedans in order to fix a problem with their engine compartment. The recalled vehicles belong to 2011 and 2012 model years and were built at the company's Lordstown plant in Ohio from September 2010 through May 2012.

GM revealed that the engine compartment in the vehicles is capable of catching flammable liquids such as oil or hydraulic fluid and could ignite. As a result, the company has decided to modify the engine shield under the car in order to get rid of the problem.

The recall includes 413,418 units of affected vehicles in the U.S., 61,299 units in Canada and 701 units in Israel. It did not affect vehicles that were not produced at Lordstown because they do not have the same design. However, it may affect 10,000 units of Cruze sedans sold by GM's Australian unit, Holden, who are looking into the issue currently.

GM has not yet received any reports of crashes, injuries or deaths related to the problem. It will begin notify the owners about the recall from mid-July. The fix would take about 30 minutes at the company's dealership.

Cruze is one of the top-selling compact cars of GM in the U.S. due to its better gas mileage. Last year, the company sold 230,000 units of the sedan.

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. also imposed a fine of $48.4 million on the company due to late recall of millions of defective vehicles.

GM, a Zacks #3 Rank (Hold) company, reported a $100 million fall in profits to $1.6 billion in the first quarter of 2012 from $1.7 billion in the same quarter of 2011, before special items, due to lower profits from its European operations.

On per share basis, adjusted profits were 93 cents during the quarter, down 2 cents from the first quarter of 2011. However, it exceeded the Zacks Consensus Estimate of 84 cents. Adjusted earnings before interest and taxes (EBIT) dipped to $2.2 billion in the quarter from $2.0 billion in the year-ago quarter.

Revenues in the quarter went up 4% to $37.8 billion on a 3% rise in unit sales to 2.3 million vehicles globally. It was higher than the Zacks Consensus Estimate of $36.4 billion. The automaker occupied a worldwide market share of 11.3% during the quarter, compared with 11.4% a year-ago.

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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 , TM

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