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GM Sales Rise Despite Recall Headwinds

GM Sales Rise Despite Recall Headwinds

By Scott Gamm

Despite the cloud of negative publicity surrounding General Motors’ recall woes, sales showed strength during the second quarter.

The company sold 2,505,889 vehicles worldwide, representing a 7% year-over-year rise in the United States and an 8% jump in China.

“GM did well in the world’s two largest and most profitable vehicle markets and that helped us grow despite very challenging market conditions in parts of South America, Asia and Eastern Europe,” said GM CEO Mary Barra. “We are investing in our brands around the world to keep our momentum going, and that includes growing Cadillac in China, launching a total of 27 new Opel models between 2014 and 2018 and entering new segments in North America with vehicles like the Chevrolet Colorado and GMC Canyon.”

The auto giant has faced a tumultuous year so far, recalling some 15 million vehicles on the heels of ignition and other mechanical issues with various models that can be linked to 13 deaths.

Analysts say the recalls are bringing existing customers back into dealerships for repairs, but it’s also giving them the chance to consider purchasing another GM car.

“The recalled vehicles were older models, so when people head to the dealer to fix their car, they’re also learning about the latest technology GM cars offer and they’re surprised to see they can get a new car for a monthly payment within reason,” says Sterne Agee analyst Michael Ward.

The recalls have actually helped GM boost sales, despite the halo of negative publicity surrounding the company.

“Most consumers bet with their wallets,” Ward says. “They have relationships with dealers and want products to fit their needs.”

The company has been responsive to the problems at hand, especially when it comes to victim compensation by hiring attorney Kenneth Feinberg, who played a role in victim compensation during other tragedies including the 9/11 attacks and the BP oil spill.

“They could hide behind bankruptcy shield and not be liable for compensation, but they’re choosing to man up and make payouts,” says S&P Capital IQ analyst Efraim Levy.

GM is a different company now, compared to the years before its June 2009 bankruptcy.

“Most investors are looking at these recall problems as issues from five or ten years ago and the company was a bad company then,” Ward adds. “GM is a new company post-bankruptcy that has made many improvements in its car’s technology.

The GM debacle put a spotlight on recalls throughout the auto industry. On Tuesday, Chrysler said it would recall 792,300 Jeep SUVs, including the 2006-2007 Jeep Commander and 2005-2007 Jeep Grand Cherokee, on the heels of fears the ignition may switch away from the “on” position, should the switch come in contact with the driver’s knee.

While other automakers want to avoid GM’s mistakes, it’s still a costly process to recall a vehicle.

“Even a small part replacement will result in major costs, especially when it comes to the labor involved,” Levy tells MainStreet. “If it’s a $100 per vehicle and 1 million vehicles are recalled, that’s a $100 million cost.”