By Angelo Young - General Motors Company (NYSE:GM) has recalled more vehicles this year than it sold over the last decade and on Thursday we’ll get a glimpse of how many billions of dollars the Detroit automaker's past manufacturing sins will cost it.
But despite nightmare publicity surrounding the defective ignition switches responsible for at least 16 deaths and multiple lawsuits, GM has seen its sales grow almost across the board of its line of cars, trucks and SUV.
“GM’s total and retail sales have only improved since news of the ignition switch recall affecting older model cars became widely reported upon in the media,” Ryan Brinkman, automotive equity research analyst at J.P. Morgan, said in a research note.
General Motors will report the financial results for its second quarter ended June 30 before markets open Thursday morning in New York. The world’s third-largest car company by sales volume is expected to report $1 billion in profit, down 31 percent from the same quarter last year in part because of the recall-related charges in the quarter. Revenue is estimated to grow 3.9 percent to $40.59 billion largely on stronger North American sales.
GM says will take a $1.2-billion hit in the quarter for the cost of recall-related repairs, bringing the total recall costs so far this year to $2.5 billion. GM’s has issued 60 safety-related recalls so far this year, or about 30 million vehicles worldwide, most of them in the U.S. On Wednesday, the company announced a recall of nearly 718,000 vehicles, including recent-model-year Chevrolet Camaros, GMC Terrains and Cadillac SRXs.
GM’s Chevrolet brand sedans seem to be feeling the effect of the recalls as sales of the Cruze, Impala and Malibu fell by double digits. But GM’s core strength is in pickup trucks and SUVs. Sales of the Silverado and Sierra trucks built on the company’s new K2XX platform have been strong. Chevy Tahoe SUV sales are up 12.3 percent in the first half of the year while Suburban deliveries have been growing in the high single digits.
What to look for
GM is expected to outline further costs to the largest vehicle recall in history on Thursday, as well as address weakness in the South American market that’s been hit with a currency devaluation in Venezuela, a slowdown in Brazil and Argentina’s ongoing debt crisis.
The company is expected to steady North American growth amid a rebounding auto market that will hit pre-recession levels of sales this year. The company is in the midst of refreshing and introducing a large number of vehicles, which will help maintain the company’s growth.
GM is the second largest foreign automaker in China with a dozen joint ventures, including with the top domestic company SAIC. Look for GM to address progress in the world’s largest auto market, especially in its luxury auto sales (the Cadillac) where margin are much higher. Europe has seen modest improvement, so GM should see growth in Opel-Vauxhall.
But the costs of the recalls have only just begun. In addition to paying for repairs, GM faces a litany of legal claims against it for death and injury related to the fatal ignition switch failure. The company should reveal more details about these expenses on Thursday.