Stifel Equity Trading Desk analysts James J. Albertine and Lucy Webster put General Motors under the microscope as they examine trends and data for the company.
General Motors recall inquiry
Yesterday evening, 3/10, major news outlets widely reported that the U.S. House Energy and Commerce Committee is launching an investigation into the ongoing General Motors Company (NYSE:GM) (Hold, $37.09; priced as of 3/10/14 close) recall of 1.4 mm 2003-07 model year vehicles for potentially faulty ignition switches (potentially preventing airbag deployment in the event of a crash). We note this is the largest U.S. vehicle recall of 2014, but not an anomaly relative to other high profile vehicle recalls in the past several years. In light of Toyota Motor Corp (ADR) (NYSE:TM) (TYO:7203)’s unintended acceleration recall earlier this decade, we believe OEMs have broadly taken a more cautious approach to announcing recalls, perhaps erring on the overly conservative side in many cases.
However, the General Motors Company (NYSE:GM) investigation could potentially weigh more heavily on brand perception vs. typical recalls given the link some are making to driver deaths, and General Motors’ apparent reluctance to establish a more formal investigation at an earlier date. This news comes at a difficult time considering General Motors’s ongoing push to launch new products and shed the “Government Motors” reputation some ascribed related to General Motors’ government sponsored bailout. While we see minimal financial risk (perhaps a one-time settlement charge), we note sometimes the court of public opinion can be more punitive. We also expect the high profile of this story may weigh on shares in the immediate term. We also see limited sales impact pending General Motors’ swift response to this inquiry, though a prolonged debate could potentially impact share.
Congress threatens to subpoena CFPB for auto-lending data
On 3/7, House Financial Services Chairman Jeb Hensarling issued an ultimatum to Consumer Financial Protection Bureau Director Richard Cordray, demanding the bureau turn over detailed information related to its indirect auto lending investigation by 3/13, or face a Congressional subpoena. Roughly one year ago the CFPB issued guidance to auto lenders warning them about practices that could intentionally or unintentionally lead to discrimination against minority borrowers. Lawmakers have repeatedly made requests, including letters sent on 5/28, 6/20, 9/24 and 10/30, to the CFPB to release information/evidence of alleged indirect lending discrimination, to which the CFPB has seemingly resisted. To date, the Committee noted the CFPB has only provided general overview of investigative methods, refusing to answer specific questions related to ongoing investigations. We note the committee’s letter on 3/7 appears to be in response to a CFPB’s letter dated 3/4, which indicated the bureau had no intention to publicly disclose statistical analyses conducted as part of its investigations.
CFPB plans to discontinue current employee evaluation program
On 3/6, American Banker magazine reported (citing confidential CFPB’s data obtained by the magazine) the CFPB’s internal “employee performance-review process is plagued by exactly the kind of disparate-impact statistics that the agency uses to prove discrimination in the industries it regulates”. American Banker indicated that “20.7% of white employees received the highest performance rating compared to 10.5% of African-American employees and 9.1% of Hispanic employees”, taking into account pay raises and bonuses. Today, 3/11, American Banker is reporting that the CFPB is planning to eliminate its current employee performance management system, citing an e-mail from CFPB officials to “several media outlets.” The CFPB is working with the National Treasury Employees Union on next steps, according to American Banker.