Why The GM Recalls Matter

Image from Flickr

So far General Motors has recalled over 20 million cars in the United States. These recalls have cost them an estimated $2 billion. Despite these astounding numbers, the price of GM stock appears relatively unaffected, trading at around $36 a share, not far from its 5-year high of $41.85. The fact that the company's stock appears to be relatively unfazed by the endless stream of recalls may speak to GM's annual revenue of $155.42 billion (2013), but it doesn't seem like a good sign for the GM vehicle owner, or the consumer at large. If a company, despite what most would agree is a shocking number of recalls, isn't losing the confidence of its shareholders in a big way, it might reinforce the poor behavior which GM has been accused of engaging in from the start.

So if the GM recalls haven't necessarily hurt the company's stock price, which seems to be what the company finds to be of utmost importance, then do the GM recalls matter, and if so, how?

The answer is; the recalls matter in the message that they send. Right now, GM is the laughingstock of the car world. Every article about the recall, and about GM as a whole, focuses on the astronomical number of recalls, with references to the entire brand being subject to one recall or another. The most telling aspect of how impactful and damning the recalls are can be found in the silence of General Motors fans, of whom there are many, as they are very reluctant to come out and defend the company's reprehensible behavior. This kind of damage to a brand's credibility will not simply be forgotten overnight, and will likely loom for years, if not decades to come. The fallout from the scandal is only beginning, with a lawsuit being filed against GM today for a whopping $10 billion for the lost resale values of their recalled vehicles. This is in addition to various civil, political, and criminal proceedings against the company, which are likely only at the beginning stages.

But if the company's earnings and stock price remain strong, then why would the company care about any of the aforementioned consequences? The answer is that it really isn't about GM, it is about what they have to deal with as a consequence of covering up their (possibly criminal) behavior. If you recall, Toyota went through something similar on a much smaller scale a few years back, when they had issues with a pedal that would stick. Toyota's CEO ended up going on national television and literally started crying when faced with his company's mistakes. The result in that case was Toyota taking responsibility, correcting their internal protocols, and learning a lesson from their mistakes. While GM can be accused of lots of mistakes up until this point, the sheer number of recalls is a very strong indication that they are holding nothing back, and leaving nothing to chance in regards to any potential safety issues.

While there is a case to be made for pursuing harsh consequences for GM, and its employees who allowed multiple deaths to occur rather than fix what amounted to a simple ignition problem, and this still may happen, the brand's reputation has suffered harsh consequences itself. In today's world of inter-connectivity and social media, it's very difficult for companies, let alone titans like GM, to sweep their problems under the rug. And while there are still plenty of people lining up to buy Chevrolets, and Cadillacs, there are likely millions of people who will never trust the brand with their family's lives again, no matter how much damage control, or public relations spin GM puts out there. GM, its CEO Mary Berra, and, most importantly, every other car company CEO, executive, and shareholder knows this, and will take note the next time an engineer or safety inspector brings a potentially deadly issue to light. So despite GM's continued strong sales, and steady stock price, everyone at the company, and in the industry knows, the GM recalls matter.

MechanicAdvisor.com is one of the largest online mechanic resources in the US. We are the premier website for consumers to research and connect with reputable local mechanics for routine and specialty automotive repair. Our website features instructional videos, articles about maintaining your car, and detailed profiles of over 500,000 mechanics across the country. If you're a shop owner, please claim your shop page for free her