What Impact Will The Recall Have On GM's Sales?

Many expect GM sales to take a hit from a mishandled recall of small cars, though it's unclear when and how severe.

DETROIT (AP) -- As General Motors executives show off their newest cars and trucks in New York this week, analysts are watching for signs that consumers are shying away from the ones sitting on dealer lots.

Many expect GM sales to take a hit from a mishandled recall of small cars, though it's unclear when and how severe. Any decline would hurt the automaker's market share and potentially its credit rating. Concerned investors have sent GM stock to a 10-month low.

So far, GM executives say they're not worried. Buyers recognize that the recalls affected older models and not the new vehicles in GM's showrooms, GM's global product development chief Mark Reuss said at an event Tuesday evening in New York to introduce a high-performance Corvette convertible and a new subcompact SUV, the Chevrolet Trax.

"We're really not seeing people's interest wane. It really is all about the products and the price and the value, and we're creating that today," he said. Reuss said traffic at U.S. dealerships hasn't waned since the recalls.

Data collected from dealers by J.D. Power and Associates show GM U.S. sales fell 6.3 percent in the first five days of April compared with a year ago, while the overall market dropped just 0.3 percent. The same data show an even larger decline for Ford Motor Co. April is expected to be a rebound month in the U.S. after a rough winter, and analysts expect sales to pick up in the month's second half.

Joe Hinrichs, Ford's president of the Americas, also said Tuesday that Ford's sales should increase as the month progresses.

GM began recalling 2.6 million small cars worldwide in February to replace faulty ignition switches. The company says at least 13 deaths have been linked to the switch problem. CEO Mary Barra's appearance before Congress this month drew even more attention to the issue.

In a speech Tuesday ahead of the New York show, Barra said the company's retail sales to individual buyers were up 7 percent last month, higher than the rest of the industry. In addition, GM's average sale price set a record at $34,000, up about $2,000 from February and more than $3,800 from last year, she said.

Historically, big, highly publicized safety problems eventually affect sales, said Jesse Toprak, chief analyst for the car-buying site Cars.com. GM's sales weren't hurt in February or March, but data from April is starting to show weakness, Toprak said.

He said buyers trying to decide between a GM brand car and a rival "might just take GM from their consideration list, thinking that it's not worth it."

Jeff Schuster, senior vice president of sales forecasting for LMC Automotive, an industry consulting firm, expects GM sales to show a gain this month, but only about half the 8 percent increase he forecasts for the industry overall. The recall might have an impact, but GM has also been struggling to match Ford and Chrysler in pickup sales, he said.

Schuster doesn't think GM's market share will plunge as much as Toyota's did in 2010, when it recalled millions of cars because of unintended acceleration. The difference: GM no longer makes most of the cars it's recalling. In 2010, Toyota was recalling cars currently on sale.

In the second half of that year, Toyota sales fell more than 8 percent. For the full year, Toyota's share of the U.S. market dropped 1.5 percentage points, according to Autodata Corp.

So far this year, GM's sales are down 2 percent, but its car sales have outperformed the market, rising 3.4 percent through March. And they could be helped later this year by models being introduced at the New York show, including a freshened Chevrolet Cruze compact for 2015 and the Trax, which gives Chevy an entry in one of the hottest-selling market segments.

A sales decline or increased use of discounts could have broader repercussions for GM. The Standard and Poor's ratings agency last week said the recalls could prevent GM's credit rating from returning to investment grade for the first time since 2005. The agency warned that it is watching for "any significant deterioration" in GM sales. GM's U.S. market share in March was 16.7 percent, down 0.2 percentage points from a year ago.

Several GM dealers say their sales haven't been hurt by the recalls, with some reporting better months than last year thus far.

"I haven't noticed any impact on sales at all," said Anthony Augelli, owner of a Buick-GMC dealer in Gurnee, Illinois, north of Chicago.

Shares in General Motors Co. rose 81 cents, or 2.5 percent, to close at $33.36. They are down 6 percent since the string of recalls started on Feb. 13.

Auto Writer Dee-Ann Durbin contributed to this report from New York.

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