Wall Street assesses GM’s status injury

DETROIT — The possible hit to General Motors’ track record from its recall of 1.6 million cars for faulty ignition switches poses a higher threat than the linked economic fees, analysts say.

Wall Street analysts have been attempting to aid GM traders assess the attainable harm 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 considerable direct fiscal influence to GM but are monitoring reputational headline hazards that threaten to impact GM’s share and pricing, even if temporarily,” Citigroup Inc. analyst Itay Michaeli explained in a note to customers right now.

Michaeli said his analysis of large recalls of over the previous 5 years — ones involving at least one million units, across multiple automobiles and model years — normally showed minor lasting affect on an automaker’s market place share and transaction costs.

The Toyota recall for unintended acceleration in 2009 and 2010 was an exception: Toyota lost one.5 percentage points of U.S. marketplace share in 2010, slipping to twelve.8 percent, according to the Automotive Information Data Center.

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

Other analysts have pegged GM’s cost of executing the recall at a relatively tiny $ 25 million or significantly less.

RBC Capital analyst Joseph Spak, in a note this week, estimated that the portion required for the correct costs $ 2 to $ 5. Even factoring in labor expenses at the dealership, the total price would run in the $ 80 million selection.

Likewise, the fine GM faces if the National Highway Visitors Safety Administration finds that the business did not meet it duties to notify the agency of the problem is capped at $ 35 million, not sufficient to spook investors, Stephen Brown, senior director of corporate finance for automotive at Fitch Ratings, explained in a note right now.

For context, GM in 2013 recorded pretax earnings of $ 758 billion, right after adjusting for 1-time gains and losses.

But Brown warns that possible legal liabilities and the value of long term settlements are unknown and “could be important.”

GM for now is shielded from lawsuits stemming from accidents that took place just before its July 2009 bankruptcy, simply because it is now a distinct legal entity. But “the actual affect on GM will rely on how the courts view these claims and what legal avenues might be obtainable to plaintiff,” Brown writes.

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

That sum is in line with Guggenheim Securities analyst Matthew Stover’s estimate of $ 1 billion to $ 1.5 billion in legal judgments and settlements that GM could face from the recall, according to Reuters.

Analysts say the extent of any track record harm will be dictated by the public’s perception of GM’s response to the crisis.

“GM obviously has a test on their hands,” Spak wrote. “How they control it will probably influence the reputational chance.”

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

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