GM (GM) Ignition Recall Compared to Toyota's 2010 Unintended Acceleration Woes
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Rating Summary:
26 Buy, 13 Hold, 1 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 11 | Down: 12 | New: 9
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GM's (NYSE: GM) ignition switch recall has been compare to Toyota's unintended acceleration issue in 2010, which lead to large market share declines. The impact on GM isn't expected to be as large. Analyst Rod Lache of Deutsche Bank explained.
"We do not believe that the cost of replacing the part, or NHTSA fines will be viewed as material by the Street (new ignition switch will cost around $5 and it will take less than 5 minutes to install). The primary issues will most likely be related to litigation (partially mitigated by the fact that "New GM" is not liable for crashes/injuries that precede the company's bankruptcy) and loss of market share related to negative publicity associated with this story," said Lache. "Neither of these risks can be quantified at this time, as this story is still evolving."
"We would note that in the case of Toyota, there were many other external factors that affected market share (including competitive factors). Also importantly, consumer reaction to concerns about unintended acceleration appear to be significantly higher than concerns regarding other safety defects. And we would also note that the impact on Toyota was likely exacerbated by the fact that the company had tremendous market share momentum leading up to this point (partly on their reputation for bulletproof quality). Nonetheless, we suspect that this GM recall issue may become a more significant overhang for GM's shares over the next few months. We estimate that every 50 bps of U.S. market share impacts GM NA EBIT by approximately $550 MM. For the full year 2014, our model incorporates U.S. market share of 17.6%, compared with 18.0% in 2013," added the analyst.
Deutsche Bank maintained a Buy rating on General Motors (NYSE: GM) with a price target of $48.
For an analyst ratings summary and ratings history on General Motors click here. For more ratings news on General Motors click here.
Shares of General Motors closed at $37.09 yesterday.
"We do not believe that the cost of replacing the part, or NHTSA fines will be viewed as material by the Street (new ignition switch will cost around $5 and it will take less than 5 minutes to install). The primary issues will most likely be related to litigation (partially mitigated by the fact that "New GM" is not liable for crashes/injuries that precede the company's bankruptcy) and loss of market share related to negative publicity associated with this story," said Lache. "Neither of these risks can be quantified at this time, as this story is still evolving."
"We would note that in the case of Toyota, there were many other external factors that affected market share (including competitive factors). Also importantly, consumer reaction to concerns about unintended acceleration appear to be significantly higher than concerns regarding other safety defects. And we would also note that the impact on Toyota was likely exacerbated by the fact that the company had tremendous market share momentum leading up to this point (partly on their reputation for bulletproof quality). Nonetheless, we suspect that this GM recall issue may become a more significant overhang for GM's shares over the next few months. We estimate that every 50 bps of U.S. market share impacts GM NA EBIT by approximately $550 MM. For the full year 2014, our model incorporates U.S. market share of 17.6%, compared with 18.0% in 2013," added the analyst.
Deutsche Bank maintained a Buy rating on General Motors (NYSE: GM) with a price target of $48.
For an analyst ratings summary and ratings history on General Motors click here. For more ratings news on General Motors click here.
Shares of General Motors closed at $37.09 yesterday.
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