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GM Recalls for Roll Away Problem - Analyst Blog

By: Zacks.com
Posted: 1/11/2013 1:00:00 PM
Referenced Stocks: GM;TM

General Motors Company ( GM ) plans to recall 69,000 units of pickup trucks, sports utility vehicles (SUVs) and vans worldwide because the vehicles are built with faulty park lock cables or malformed steering column lock gears. The problem could cause the vehicles  to roll away unexpectedly.

The recall affects Chevrolet Silverado and GMC Sierra full size pickup trucks, Suburban, Tahoe and Yukon SUVs, Avalanche truck, Express and Savana vans, and Cadillac Escalade full size SUV.

All the vehicles are from the 2013 model year. About 55,000 vehicles will be recalled in the U.S. and 14,000 units in Canada, Mexico and other parts of the world.

GM revealed that due to defective steering column, the vehicles can move out of its parking position even if the ignition key has been turned off or removed. However, most of the defective vehicles are not yet sold and about one in a thousand has the problem. The company's dealers will replace the steering column free of charge if needed.

GM seems to be very cautious about finding and fixing the defects in their vehicles in order to keep its brand value intact. Of late, the company made a number of vehicle safety recalls.

Recently, the automaker decided to recall 145,628 units of mid-sized pickup trucks across its global markets because their hoods can open unexpectedly and obstruct the driver's view, increasing the risk of a crash. The recall involved Chevrolet Colorado and GMC Canyon midsize trucks from 2010-2012 model years.

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.

Recently, 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 adds to $48.4 million imposed by the U.S. government on the company in 2010 due to late recall of millions of defective vehicles.

Toyota also decided to pay $1.1 billion to settle a class-action lawsuit related to complaints of unintended acceleration in its vehicles. According to a plaintiff lawyer, the settlement is one of the largest in a lawsuit in the history of automotive industry.

GM, a Zacks #2 Rank (Buy) stock, posted a 9.7% fall in earnings to 93 cents per share (excluding special items) in the third quarter of the year from $1.03 in the corresponding quarter a year ago. However, earnings per share in the quarter far exceeded the Zacks Consensus Estimate of 61 cents.

Total profit ebbed 5.9% to $1.6 billion from $1.7 billion a year go. The decline in profit was attributable to lower profits from North America and increased loss in Europe.

Revenues in the quarter grew 2.5% to $37.6 billion, surpassing the Zacks Consensus Estimate of $36.3 billion. Worldwide sales volume inched up 1.6% to 2.3 million units from 2.2 million units a year ago. However, total market share declined to 11.6% from 12.1% in the third quarter of 2011.

Operating income fell 11.2% to $1.6 billion from $1.8 billion a year ago. However, adjusted earnings before interest and tax (EBIT) rose 4.5% to $2.3 billion from $2.2 billion a year ago.



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