General Motors Co (GM, Financial) announced last week that it would be recalling 316,357 SUVs and sedans, mainly in North America, because the low-beam headlights can stop working. Affected vehicles are the model years 2006-2009 Buick LaCrosse sedans; 2006-2007 Chevrolet Trailblazer, GMC Envoy and Buick Rainier SUVs; and 2006-2008 Saab 9-7X and Isuzu Ascender SUVs. The company officials further announced that they had not been able to confirm whether the loss of lights has caused any accidents.
“If the headlamp driver module is not operating correctly, the low-beam headlamps and daytime running lamps could intermittently or permanently fail to illuminate. This condition does not affect the high-beam headlamps, marker lamps, turn signals or fog lamps," one of the company’s officials said in an emailed statement.
GM said it has informed the National Highway Traffic Safety Administration of the recall. The newest recall brings to 30.4 million vehicles worldwide and 26.85 million vehicles in the United States that GM has recalled this year. Of the 317,357 vehicles in the latest recall, 273,182 are registered in the United States.
This ordeal of recalls doesn’t seem to end for the company. In a press release the company announced that it was recalling over 2,280 of its latest mid-size pickup trucks in the U.S., regarding a faulty airbag issue, related to the safety feature's wiring. The company, which designs, builds and sells a variety of cars, truck, and automobile parts across the globe, is recalling the 2015 Chevrolet Colorado and the GMC Canyon pickups. GM also said it does not know of any injuries related to the air bag issue, and added that it will fix the issue for free if any case comes up. Shares of GM are up 0.82% to $33.36 at the start of trading on Friday.
The estimated effects of these recalls
The analysts have been speculative about these recalls. The company, the analysts feel, might be up for some trouble due to these frequent recalls. The revenue growth came in higher than the industry average of 18.0%. Growth in the company's revenue appears to have helped boost the earnings per share. The debt-to-equity ratio is somewhat low, currently at 0.96, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.83 is somewhat weak and could be cause for future problems.
The company has recently reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently, but we feel it is poised for EPS growth in the coming year. During the past fiscal year, General Motors reported lower earnings of $2.35 versus $2.93 in the prior year. This year, the market expects an improvement in earnings ($2.62 versus $2.35).
The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Automobiles industry average. The net income has decreased by 14.3% when compared to the same quarter one year ago, dropping from $1,717.00 million to $1,471.00 million.
To conclude
GM has underperformed the S&P 500 Index, declining 14.87% from its price level of one year ago. The analysts feel that this figure is set to further decline in coming future. Despite the decline in its share price over the last year, this stock is still more expensive than most other companies in the auto-industry. This very fact is what might offset the adverse effects of these recalls. All in all, I rate GM a buy.
