How Much Market Share Will GM Recalls Cost?

Source: courtesy of General Motors
General Motors Co. (NYSE: GM) delayed its report on March sales due out Tuesday morning until sometime in the afternoon. The company blamed a computer snafu. But that is not its biggest problem. Neither is the company’s recall of more than 7 million vehicles so far this year.

The recalls will cost GM $750 million in the first quarter, and that is just to fix all the problems. The total does not include the almost certain civil claims and criminal penalties the company will be on the hook for.

The really big problem is what all these issues mean for the company’s market share. GM sold 222,104 vehicles in February giving it an 18.6% share of the U.S. market. Two of the recent recalls could hit GM particularly hard. Last Friday GM recalled 172,000 of its best-selling car, the Chevy Cruze, and 490,000 of its best-selling pickup trucks and SUVs. The impact of those recalls will not be revealed in March sales, but April could be a cruel month for GM, and the spring and summer selling season could be worse.

Year-over-year sales for all car makers through the end of February were down 1.5%, according to Kelley Blue Book, and total car sales in February came in at 1.19 million. With some exceptions, March figures to be a slower month as well. Analysts expect the bleeding to stop in April, but maybe not for GM.

GM may be able to escape some or all of its liability for damages and penalties for undisclosed defects prior to its bankruptcy filing in 2009. The “new” GM is a different legal entity than the “old” company. Under the terms of its exit from bankruptcy, the “new” GM is not responsible for legal claims relating to incidents that took place before 2009. A lawsuit in California is already challenging that decision.

The company’s new chief executive officer is doing all she can to burnish the company’s image by issuing recall notices by weight. She obviously hopes that potential customers will see that GM has done an about-face on defects and now plans to take responsibility for them rather than try to hide them. It is a sound strategy, but it could be very costly. The only way to tell if it is working is to watch the company’s market share numbers.

The loss of a point of share amounts to about 12,000 monthly sales for GM. That is fewer than three cars per U.S. dealership. And the worst part is that even big incentives, which eat into profits, might not help.