The year of 2014 isn’t even halfway over, and General Motors (GM) has already recalled more than twice as many cars as it sold in all of 2013.
This week, the automaker was slammed for its “culture of secrecy.” For years, top executives were kept in the dark about a deadly ignition switch defect. But U.S. lawmakers say that the alleged “ignorance” doesn’t absolve them of responsibility for the 13 deaths directly connected to GM’s defective cars.
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Mary Barra, GM’s Chief Executive, faced a harsh line of questioning before a House Energy and Commerce subcommittee…
Why did it take America’s No. 1 automaker an entire decade to recall millions of defected vehicles?
Barra, who took the helm in January, claims that she wasn’t aware of the issues until December 2013, although she’s been a GM veteran of over 30 years.
Inquiring minds want to know if she ever saw an internal memo forbidding employees from referring to a GM car as a “rolling sarcophagus.”
Meanwhile, the number of recalls continues to grow…
As of now, GM has issued 44 recalls this year, totaling 20 million vehicles worldwide.
Consumers seem unfazed by the mass defects, however. GM’s May U.S. sales beat analyst expectations with a 12.6% increase from the year prior.
And the market seems unconcerned about billions of dollars of potential legal liability related to fatalities and lost resale value. GM’s share price is slightly higher than just before the announcement of the first ignition-related recall on February 13.
So, on the one hand, you have an inept carmaker that covers up defects and has basically recalled its entire fleet. Also, there’s a record inventory of cars sitting unsold on dealer lots which raises questions about channel stuffing.
On the other hand, you have a cheap valuation. GM’s forward P/E ratio is 11.8x, and its EV/EBITDA is only 3.3x.
Luckily, owning the shares won’t kill you… even though driving a defective Camaro might.
Income Research Team