GM Recalls Damage Used Car Value

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When General Motors Co. (NYSE: GM) recalled the more than 5 million vehicles with an ignition switch defect, the company reserved more than $1 billion to pay for its recalls and set up an unlimited fund to compensate victims of crashes where the vehicle’s airbags failed to deploy properly. But millions of other owners will also get hit in the pocketbook because of the recall and there is nothing they can do about it.

If you own one of the vehicles recalled to repair the defective ignition switch, that fact alone has lowered your car’s value by 14% from March through June 2014, compared with March through June of 2013 and adjusted for inflation. That is double the average 7% for a GM car not involved in the recall and more than double the 6.7% drop for all cars of similar size and age.

That data comes from iSeeCars.com, a used car search engine and website that analyzed prices for more than 11 million used cars for the periods March through June of 2013 and 2014 and calculated average price changes for GM cars recalled for a faulty ignition switch, price changes for all cars and price changes for all GM cars.

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Over the 13-month period to June 2014, the average price drop was 15.5% from May to June 2014 for all GM’s recalled cars. The decline has been growing, from a month-over-month drop of 12.5% in March, followed by consecutive drops of 13.9% in both April and May. These cars are losing value at a phenomenal pace.

The model year 2005 through 2007 Chevy Cobalt and model year 2007 Pontiac G5 took the worst hit, down 13.7%, more than double the average decline. A model year 2003 to 2007 Saturn Ion has lost 13.6% of its value and a 2006 to 2007 Chevy HHR has lost 11.5%.

Not all the recalled cars were subject to the same price cut. For example, a base model 2006 Chevy Cobalt LS with 75,000 miles on the clock in good condition has a private-party resale value of around $5,100, according to Kelley Blue Book. A base model 2006 Saturn Ion with 75,000 miles on the clock and in good condition carries a private-party resale value of about $4,000. A 2006 Honda Civic with similar numbers should sell for about $7,400.

iSeeCars.com CEO Phong Ly told 24/7 Wall St., “We believe the post-recall price drops we’re seeing with these vehicles is largely a result of sellers wanting to move them and dropping their prices more than normal to make it more compelling for buyers.” That sounds about right to us.

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