Why GM's recalls aren't denting sales

To mix advertising metaphors, General Motors (GM) is proving to be the "Energizer Bunny" of multi-national corporations. It keeps on "going and going" despite what seems to be a never-ending barrage of negative publicity resulting from its failure to disclose a deadly ignition switch defect for more than a decade.

Though there has been much talk in the media and in bond rating agencies about the damage the scandal might cause the GM brand, it hasn't translated to much action, surprising many experts who had expected GM sales to fall as had occurred with Toyota a few years ago when the Japanese automaker's safety practices were subject to intense criticism in the media.

"[Y]ou would have perhaps expected a temporary sales dip," writes Robert Haigh, director of communications at London-based brand consultancy Brand Finance, in an email. "My guess at an explanation for the lack of this (other than brand strength) is twofold. Firstly the improving U.S. economy means there is a cohort of people who have been delaying purchasing decisions but are now coming into the market, offsetting those turning away from GM. Secondly it has been said that large numbers of those with recalled vehicles are staying loyal to GM, purchasing new models and actually increasing GM sales."

In fact, the Detroit-based company recently said that retail sales in the first half of the year posted their biggest gain since 2008. GM dealers delivered 267,461 vehicles in June, better than the 247,767 analysts expected. According to data from Autodata Corp., cited by Bloomberg Businessweek, GM's U.S. market share was 18 percent in June, up from 16.9 percent in January before the recalls started.

"It seems that when someone is shopping for a new car or considering a new car they don't seem to take recall news into much account," said Bill Visnic, senior editor at Edmunds.com, in an interview. "Mostly they tend to pretty much shut it out."

Owners of Chevrolet Cobalts, one of the recalled models, are a case in point. Edmunds data shows that Cobalt owners' loyalty to GM and Chevy has grown in intensity. Between March and May, there were 21 percent more Cobalt trade-ins compared with 2013. A surveys done in May found that 49 percent of people trading in a Cobalt for a new car bought another GM vehicle, which was higher than the 47.5 percent rate measured in May 2013, before the recalls began. About 46 percent of people who traded in a Cobalt bought another Chevy, according to Edmunds.com.

This week GM announced recalls of 8.4 million vehicles, bringing its total to 28 million, almost double the 16 million units GM expects the industry to sell in the U.S. this year.

"GM's sales performance is even more impressive than it looks," said John Krafcik, president of vehicle research firm TrueCar. "It's pretty amazing."

The average GM vehicle sold for $32, 848 in June, above the industry average of $32,025. The automaker raised prices by 8.8 percent, while the industry saw a decline 0.8 percent. GM is also offering buyers fewer financial incentives than it did last year, spending $3,280 in June versus $3,724 in the year-ago period. That's lower than Ford and Chrysler.

GM has shown "a remarkable ability to make lemons into lemonade," Krafcik said.

GM also announced this week that it would take a charge of as much as $1.2 billion, higher than the $700 million the company had previously expected. Victims have contacted attorney Kenneth Feinberg, who has been hired by GM to handle claims from victims of the defective ignition switches, even though the program doesn't officially begin until August, according to Bloomberg News.

Though crisis communications consultants faulted GM and CEO Mary Barra for failing to strike an appropriate tone with either the families of the victims or members of Congress, the automaker has improved its performance. One of the points that Barra continues to make is that the problems were part of GM"s past and that company has taken steps including firing employees to make sure that they won't happen again.

Wall Street also is rooting for GM. Shares of the automaker are now trading above the $37.59 level they were when the company's safety woes first became public. Most analysts recommend investors buy the stock.

  • Jonathan Berr

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