Boston, MA 04/11/2014 (wallstreetpr) – Will the 3.1 million vehicle recalls by General Motors Company (NYSE:GM) affect its long-term fortunes? Toyota Motor Corp (ADR) (NYSE:TM)’s experience seems to suggest that such product recalls don’t affect companies in the long run.
After GM’s bankruptcy and revival after restructuring, the question is whether it has made a sufficiently strong break with its dysfunctional past which brought it to bankruptcy in the first place. The factory closings were a necessary part of the restructuring.
But other GM problems needed to be fixed as well including overly bureaucratic processes and often misplaced priorities. Product development cycles needed overhauling as well. Much has been accomplished in this regard but much remains for new CEO Mary Barra to do. She has placed two engineers on paid leave after an internal investigation into these problems. But that’s a minor tactical move and hardly a strategic solution. With the House Energy and Commerce Committee promising a protracted investigation, GM’s problems from both Congressional investigations and possible lawsuits against GM will continue.
General Motors Company (NYSE:GM)’s long time competitor Ford Motor Company (NYSE:F) provides a good case study in how to perform this turnaround. Owning GM stock would only make sense if it can be demonstrated that it has really made fundamental changes.
Now that it has announced that it will take a charge of $1.3 billion in 1Q2014 to cover all these recall costs, analysts would have soured some more about the future of GM.
Automakers so far have recalled more than 9 million vehicles in the U.S. —2.85 million by Toyota and 5.6 million by G.M. — placing 2014 on track to beat some historic highs in terms of recalls.
While GM has been plugged by ignition switch problems, Toyota’s troubles have to do with faulty electrical parts that might cause problems with the air bags.
China And The Emerging Markets
One of the few silver linings for GM remains the Chinese auto market, which is the world’s largest and where GM does quite well with its Cadillac, Buick, GMC and Chevrolet brands. If GM can convert its luxury brands like Cadillac into global winners like Mercedes, BMW, Audi, Ferrari or Porsche, General Motors Company (NYSE:GM) will become a highly profitable company again since it’s usually the luxury brands that pull in most of the profits for their parent companies.
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