Autos

Why GM's Recall Mess Might Not Scare Away New Customers


General Motors (GM) executives will be losing sleep and hundreds of millions of dollars over the next few months as they try to put to rest a protracted recall crisis. But the entire mess—including millions of potentially faulty ignition switches and at least 13 deaths—might be largely ignored by people shopping for new cars.

Vehicle recalls, even massive ones, don’t often dent sales of current models. For one, the vehicles swept up in even the biggest recalls are typically older models that buyers don’t necessarily associate with the machines currently available on dealership lots. The state of the general economy, along with those sweet incentives on offer, often trump any safety concerns about past models.

Case in point: GM recalled 1.5 million trucks in June 2010 because a unit that heated windshield-washer fluid had a tendency to catch fire. Over the course of that summer, GM vehicle sales surged almost 40 percent. Customers either didn’t care much about flaming windshields or they were spurred by the fast-improving economy. Given that example, perhaps it was not entirely surprising that GM managed to increase vehicle sales in the U.S. by 4 percent last month compared with one year ago, even amid the grinding recall mess.

A review of sales performance in the wake of some of the largest recent recalls finds little clear connection between troubling safety headlines and current-model sales. The list below tracks the number of vehicles recalled with the change in year-over-year vehicle sales for the three-month period following the recall.

Jan. 2010: Toyota (TM) recalls 5.6 million vehicles (+35%)
March 2010: GM recalls 1.3 million vehicles (+64%)
June 2010: GM recalls 1.5 million trucks (+38%)
Aug. 2010: Toyota recalls 1.3 million vehicles (+4%)
Oct. 2010: BMW (BMW:GY) recalls 350,000 vehicles (+58%)
Oct. 2010: Toyota recalls 1.7 million vehicles (-1%)
Jan. 2011: Toyota recalls 1.7 million vehicles (-7%)
Jan. 2011: Honda (7267:JP) recalls 833,000 vehicles (+2%)
Sept. 2011: Honda recalls 960,000 vehicles (-6%)
March 2012: BMW recalls 1.3 million vehicles (+9%)
Oct. 2012: Toyota recalls 7.4 million vehicles (+1%)
Nov. 2012: Toyota recalls 2.8 million vehicles (+3%)
Jan. 2013: Toyota recalls 1.3 million vehicles (-5%)
April 2013: Hyundai/Kia recalls 1.8 million vehicles (+7%)

Not everyone watching the current GM mess unfold is convinced that the company’s sales will escape unscathed. The recall has been truly massive, and since the original warnings, GM has issued a number of additional recalls. The scope of the ignition-switch problem has widened from 1.6 million vehicles to 2.6 million, with another 4 million vehicles now suspected for a range of glitches, from steering to airbag wiring. Some of the recall directives even call for customers to bring in current models.

And the problem that GM needs to address has proven deadly, unlike many of the previous events on this list. It would have been one thing if GM ignitions didn’t properly start vehicles. Shutting them off in middrive, however, is something more dangerous entirely.

Fiat’s (F:IM) Chrysler unit, meanwhile, will give observers another test case for the sales impact of recall. This morning the automaker issued a recall for 868,000 Jeep Grand Cherokees and Dodge Durangos. The apparent problem, which affects model years 2011 through 2014, is overly firm brake pedals. And Jeeps had been selling fast.

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

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Companies Mentioned

  • GM
    (General Motors Co)
    • $33.94 USD
    • -0.09
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  • TM
    (Toyota Motor Corp)
    • $118.76 USD
    • -0.67
    • -0.56%
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