GM sales increase in June despite expanding recall controversy (+video)
General Motors has recalled 29 million cars so far this year; the company is facing possible criminal charges and will pay millions to victims. But GM's sales have been strong over the past six months. Can the company continue to withstand the hits to its reputation?
Amid ongoing controversy and historic recall numbers, General Motors (GM) announced Tuesday that sales in June were up one percent compared to the same time last year. In the announcement, the company said it had the best June sales since 2007.
“June was the third very strong month in a row for GM, with every brand up on a selling-day adjusted basis,” said Kurt McNeil, US vice president of sales operations at GM. “In fact, the first half of the year was our best retail sales performance since 2008, driven by an outstanding second quarter.”
The good numbers come as recalls continue to pile on for GM. Through the end of June, the automaker has recalled almost 29 million cars in North America, more than the auto industry has recalled annually for the past nine years, according to the LA Times. A malfunctioning ignition switch problem has been linked to several accidents and at least 13 deaths. The Chevy Cruze, the company's second bestselling car, has also been the subject of two recalls, one for a faulty airbag and another regarding insulation on an engine heater power cord.
But the question remains: In the long run, will people continue to buy GM cars?
“This could be a case of the death-by-a-thousand-cuts dynamic,” Anthony Johndrow, a managing partner of New York’s Reputation Institute, a firm that focuses on corporate image-building, told NBC News. “You lose resilience when your reputation is injured, and the more hits you take, the more damage you suffer. Your reputation can bounce up, but it can bounce down even quicker.”
Some experts disagree, suggesting that the increase in the number of sales for June means the controversy isn't dissuading consumers from buying GM cars.
“General Motors is resilient,” said Michelle Krebs, a senior analyst at AutoTrader.com. Ms. Krebs added that she believed consumers could be ignoring the latest recalls because there have been so many recently. “Consumers understand that the GM of today is not the GM that made the recalled cars. They are making a different product.”
Even if sales continue to increase, there is no doubt that the recalls, possible lawsuits, and settlements will cost GM a lot of money. The company is already projecting that the recalls could cost $1.2 billion for the current quarter, according to the Wall Street Journal. GM spent $1.3 billion to cover recall costs in the first quarter of the year.
The $2.5 billion the company is planning to pay for recall costs (so far) doesn't include the millions the company will spend to compensate those who were hurt or lost loved ones in accidents connected to recalled parts. GM will provide between $20,000 to a few million dollars to any pedestrian, passenger, driver, or occupant who can prove they were hurt in an accident involving cars GM has recalled through a compensation fund run by Kenneth Feinberg. The automaker will pay $1 million to the families of anyone killed in an accident, according to the Wall Street Journal. It isn't certain how much money the compensation program will cost, but Feinberg has said the compensation fund has no cap to the amount it will spend to compensate victims.
There could also be criminal charges brought against the company for allegedly failing to comply with laws requiring timely disclosure of vehicle defects. "The [Southern District of New York] and [The Department of Justice] are currently conducting a criminal investigation of GM which resembles the one they conducted of Toyota and ended in a $1 billion settlement," said Carl Tobia, a professor at the University of Richmond School of Law. "It may be several years before the probe is completed as Toyota’s took four."
Ms. Krebs said the lawsuits wouldn't have a big impact on GM because the charges will take a while to resolve. She said criminal charges didn't hurt Toyota in 2009, when it went through its own set of major recalls. By the time the criminal charges were settled in 2014, Toyota's sales had already bounced back. Referring to the amount of money GM will have to spend on the compensation fund and recalls, Krebs said, "Certainly there will be a hit to the bottom line but not one GM can't handle."