Stifel Equity Analysts James J. Albertine and Lucy Webster argue the sell-off of General Motors Company (NYSE:GM) shares related to the yesterday’s recall is overblown, but yet another recall incident does hurt investor sentiment and negatively impact ongoing turnaround efforts.
Yesterday, 3/17, General Motors Company (NYSE:GM) announced three new recalls associated with CEO Mary Barra’s request for a broader internal safety review. General Motors Company (NYSE:GM) also announced a $300 mm charge that will occur in 1Q14 associated with the three recalls and the previously announced ignition switch recall.
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Evaluating the highest profile recall actions in U.S. history, it seems to us sell-offs related to recall incidents tend to be overdone in the immediate term and generally bleed out of shares in relatively short (1-3 month) order. At this point we also see limited risk of a material financial charge (above the $300 mm GM noted) derailing General Motors Company (NYSE:GM)’s positive financial trajectory. That said, we think valuation upside is limited by a lagging turnaround effort relative to peers, and prolonged focus on recalls only furthers GM’s window to catch up.
General Motors Recall Announcement Details:
General Motors Company (NYSE:GM) is recalling 303k Chevrolet Express and GMC Savana units from the 2009-2014 model years with a gross vehicle weight of under 10,000 lbs. Currently, the vehicles do not comply with a head impact requirement for unrestrained occupants and the passenger instrument panel must be reworked.
General Motors Company (NYSE:GM) is recalling roughly 64k Cadillac XTS units from the 2013-2014 model years. In the XTS, a brake booster pump default may cause corrosion, overheating, melting of plastic components, and the possibility of an engine compartment fire. Two engine compartment fires in unsold vehicles at GM dealerships have been reported.
General Motors Company (NYSE:GM) is recalling 1.18 mm Buick Enclave and GMC Acadia models from the 2008-2013 model years, Chevrolet Traverse from the 2009-2013 model years, and Saturn Outlook from the 2008-2010 model years. General Motors Company (NYSE:GM) reported a defect with the side airbag wiring, where ignoring the Service Air Bag warning light eventually results in non-deployment of the driver and passenger seat-mounted side airbags, front center airbag, and seat belt pretensioners.