GM’s reputation damage assessed by Wall Street

DETROIT — The possible hit to Standard Motors’ track record from its recall of 1.6 million autos for faulty ignition switches poses a greater chance than the connected economic costs, analysts say.

Wall Street analysts have been striving to support GM investors assess the feasible damage to the company’s bottom line and stock value from the recall, which has led to probes by federal regulators, Congress and the U.S. Justice Department.

“We do not see a significant direct financial effect to GM but are monitoring reputational headline dangers that threaten to influence GM’s share and pricing, even if temporarily,” Citigroup Inc. analyst Itay Michaeli stated in a note to consumers nowadays.

Michaeli stated his evaluation of huge recalls of over the past 5 many years — ones involving at least one million units, across several vehicles and model many years — generally showed small lasting affect on an automaker’s market share and transaction charges.

The Toyota recall for unintended acceleration in 2009 and 2010 was an exception: Toyota lost one.5 percentage points of U.S. industry share in 2010, slipping to 12.8 percent, according to the Automotive News Information Center.

Michaeli says GM’s recall is “reminiscent” of Toyota’s crisis but involves far fewer automobiles and also versions that are no longer in manufacturing.

Other analysts have pegged GM’s price of executing the recall at a comparatively tiny $ 100 million or less.

RBC Capital analyst Joseph Spak, in a note this week, estimated that the element necessary for the repair costs $ 2 to $ 5. Even factoring in labor charges at the dealership, the total value would run in the $ 80 million range.

Likewise, the fine GM faces if the Nationwide Highway Visitors Safety Administration finds that the firm did not meet it duties to notify the company of the difficulty is capped at $ 35 million, not enough to spook traders, Stephen Brown, senior director of corporate finance for automotive at Fitch Ratings, mentioned in a note right now.

For context, GM in 2013 recorded pretax earnings of $ 8.58 billion, following adjusting for 1-time gains and losses.

But Brown warns that potential legal liabilities and the value of potential settlements are unknown and “could be significant.”

GM for now is shielded from lawsuits stemming from accidents that happened just before its July 2009 bankruptcy, because it is now a various legal entity. But “the actual influence on GM will depend on how the courts view these claims and what legal avenues may well be accessible to plaintiff,” Brown writes.

This week auto safety advocate Clarence Ditlow and former NHTSA administrator Joan Claybrook, who have criticized GM for not issuing a recall sooner, known as on the business to produce a $ 1 billion believe in fund to compensate victims of security defects in its automobiles.

That volume is in line with Guggenheim Securities analyst Matthew Stover’s estimate of $ one billion to $ 1.5 billion in legal judgments and settlements that GM could encounter from the recall, in accordance to Reuters.

Analysts say the extent of any status damage will be dictated by the public’s perception of GM’s response to the crisis.

“GM plainly has a test on their hands,” Spak wrote. “How they deal with it will most likely effect the reputational chance.”

You can attain Mike Colias at mcolias@crain.com.

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