General Motors Company (NYSE:GM) goodwill and stock price will only suffer short-term damage due to yesterday’s recall and the earlier much-delayed recall of the faulty ignition switches that claimed 12 lives. The incident puts GM in a negative light as the automaker was aware of the ignition switch problem over a decade ago, but didn’t act until recently.
Analysts still optimistic
Despite the recall issues, investors backed General Motors Company (NYSE:GM) and pushed the shares up on Monday. Citi Research projects that any negative effect on the stock would be short lived, and expect the stock to trade up to $48 or around 38% higher than Monday’s closing price of $34.63, after the recall issue settles down.
The analysts stated that the recall affects the company market value as the actual production is affected. One thing in favor of General Motors Company (NYSE:GM) is that the recalled models are no longer in production.
On Monday, GM CEO Mary Barra, in a video, apologized for the mishandling of the 1.6 million-vehicle recall. Barra said that the supplier, Delphi, has come up with an additional production line to supply the replacement parts to dealers soon; however, the replacement won’t start until the second week of April.
“Something went wrong with our process in this instance and terrible things happened,” Barra said in a video posted on GM’s website.
Troubles may increase for General Motors
On Monday, the automaker revealed that it would incur a charge of $300-million against its first quarter earnings due to the cost of the ignition-switch recall and the three new safety recalls announced Monday.
Further problems could be in store for the automaker if more negative information comes to light or Congress cancels the protection from the liability incurred before its bankruptcy in 2009. General Motors Company (NYSE:GM) could also receive a hefty fine fine the National Highway Traffic Safety Administration for delaying the recall by more than a decade.
As of now, General Motors Company (NYSE:GM) is involved in four investigations and various lawsuits, both personal injury and class-action, have already been filed against the automaker. Furthermore, at least one of the ongoing suit may impact the company’s immunity from the product liability incurred before July 2009. The families of those who died in accidents due to the ignition switch problem are also pressing forward with their claims.
