General Motors: Lessons from Toyota as Recall Grows

Another day, another headline for General Motors (GM)–but at least it has company today, as Toyota Motor (TM) and Honda Motor (HMC) made headlines if their own. Even Ford (F) made headlines over currency matters.

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Today, General Motors recalled an addition 1.5 million vehicles, and said it would take a $300 million first-quarter charge. On Friday night, meanwhile, reports hit of the first of what should be many lawsuits filed against General Motors.

RBC Capital Markets’ Joseph Spak and Jacob Hughes consider the where General Motors goes from here:

It does appear GM is trying to send a message of a refocused company and providing consumers with greater "peace of mind".  GM proactively issued these recalls after a comprehensive internal review.  Internal processes are being reviewed likely to ensure something of this scope doesn't happen again.  But, to the average consumer, the negative headlines continue.  For GM, you could argue these headlines are coming at the worst possible time given elevated industry pricing fears.  Also, in this new recall, some current MY vehicles are included (as opposed to the ignition switch recall) so potentially more relevant to consumers shopping for a new GM vehicle.

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Citigroup’s Itay Michaeli and team take another look at Toyota Motor’s recall for clues of what’s to come for General Motors–and comes away feeling optimistic:

Toyota's stock price took an initial hit when the recall commenced in late-2009, but then experienced a period of stability and recovery through year-end despite a flurry of negative headlines that persisted after the initial recall. Market share…also held up during this period. The real pressure began in early-2010 when Toyota expanded the recall and was forced to halt production for a brief period ([General Motors'] recall involves out-of-production models). It was also at this stage that Toyota's share first began to suffer, though ATPs held-in. And unlike the bounce that occurred after the initial recall, Toyota's share and stock price came under further pressure in Feb 2010 as hearings/investigations commenced…

While every recall is distinctly different, the Toyota events suggest that market share losses only commenced when the initial recall expanded to the point of forcing production cuts. The [General Motors] situation is far from an easy call, but we think the risk of Toyota-like share losses would only come into play if the headline situation materially worsens (i.e. outcome of investigations etc.). Otherwise, [General Motors] share price reaction (vs. Toyota's) would suggest a likely bounce.

Meanwhile, Honda Motor announced its own recall–of nearly 90,000 Odyssey vans today with faulty fuel-pump pieces. Toyota, meanwhile, announced that it had stopped building cars at two of its factories in India due to a labor dispute. Ford said it was reviewing its operations in Russia because of the weakening ruble.

Shares of General Motors have gained 1% to $34.43 at 1:49 p.m. today, while Toyota Motor has gained 1.4% to $110.30, Honda Motor has advanced 1% to $35.84 and Ford Motor has risen 1.3% to $15.28.