VOL. 38 | NO. 24 | Friday, June 13, 2014
GM sales, used-car values hold up through recalls
DETROIT (AP) — Consumers looking for a used vehicle aren't shying away from GM models — even though more than 20 million GM cars and trucks have been recalled this year.
General Motors cars such as the Chevrolet Malibu have retained or increased in value, sometimes more than rival vehicles. And sales of new cars aren't slowing either, up 13 percent in May.
GM has issued 44 recalls in North America this year for parts ranging from ignition switches to air bags. The most serious is for ignition switches in 2.6 million small cars linked to more than 50 crashes and at least 13 deaths. Investigations into that recall have exposed GM as a company that was too slow to react to serious safety issues.
In the past, consumers punished automakers for big recalls. Those companies lost market share — Toyota's dropped 2 percentage points over 12 months when it recalled 14 million cars for unintended acceleration. Yet GM's has held fairly steady so far, around 18 percent.
GM has cautioned that an ongoing companywide safety review could produce even more recalls — just Monday it recalled another 3.4 million cars for a separate ignition switch issue — so consumers might still decide it's smarter to buy their wheels elsewhere.
But for now, experts say, GM has retained buyers' confidence by appearing to act quickly on safety matters — even though GM's internal investigation into the small-car switch recall showed that employees took years to realize they had a safety problem on their hands.
"People are associating that with being vigilant more than being careless," said Larry Dominique, president of ALG, formerly Automotive Lease Guide, whose data is used by dealers to set values of leased cars.
That could explain why the value of the 2010 Chevrolet Malibu rose almost 3 percent from February, when the recalls started, through May, according to ALG. That compares with midsize cars as a whole, which dropped in value by 1 percent. The Malibu has been part of five recalls this year.
The value of most other used GM cars also rose. The exception: the Chevrolet Cobalt, which is at the heart of the first ignition switch recall. About 1 million Cobalts are being recalled. Of the 13 deaths GM counts, nine occurred in Cobalts.
ALG says the value of 2010 Cobalts dropped 2.4 percent from February through May, but the compact car segment's value rose almost 3 percent. Falling values have triggered lawsuits from Cobalt owners.
That doesn't mean the cars won't sell. At L.A. Sales in Oyster Bay, New York, on Long Island, part-owner Andy Kaufman recently sold a 2005 Cobalt for just under the $5,000 he was asking. The buyer, he says, had no concerns once Kaufman showed him the switch had been replaced.
Experts say the volume of recalls has taken away some of the fear factor.
"I'm beginning to wonder if the consumer is almost numb to the next headline that comes out," says Ricky Beggs, a senior vice president of Black Book, which also monitors used car prices.
The GM headlines keep coming. On Monday, GM recalled older large cars for an ignition problem, although GM says the cause in this one is the key design. On June 6 the company said 15 people had been dismissed in relation to the findings of its internal investigation into the small-car switch problem. CEO Mary Barra has repeatedly apologized for the injuries and loss of life. She makes a return trip to testify on Capitol Hill Wednesday.
Even if consumers do become sensitive to the recalls, any new-car market share decline would be small, predicts Jesse Toprak, senior analyst with the Cars.com website.
"They can mitigate it with some targeted marketing efforts" and bigger discounts, Toprak says.
Consumers seemed more sensitive in the past. In the early 2000s, Firestone recalled more than 6 million defective tires on Ford SUVs, and the automaker replaced another 10 million. At least 271 people were reported killed and hundreds injured. Ford's share of the SUV market fell 5 percentage points.
One important difference is that the recalled GM small cars — the Cobalt, Saturn Ion and Sky, Pontiac G5 and Solstice, and Chevy HHR — are no longer made. And GM's newer cars score much higher in quality surveys. Also, people don't always associate General Motors with the Chevrolet, Buick, GMC and Lincoln brands, said Dominique.
Still, there is fallout.
Elise Palazzi of Hawthorne, N.J., near New York City, is still trying to sell a 2005 Cobalt that one of her daughters used to drive.
She first put the car on the market for $4,500 just before the recalls began. Palazzi told potential buyers that she had no problems with the ignition, but they were skittish, she says.
About a month ago, her local Chevrolet dealer replaced the switch. She didn't change the price, but revised her ad to show the switch has been repaired. Now she's optimistic about selling. But a man came to see the car last week and didn't buy it.
Kaufman, the Long Island dealer, is concerned about the large number of GM vehicles subject to recalls.
The federal government says there are no regulations preventing used car lots or individuals from selling recalled cars before they are fixed. But Kaufman says he won't sell any until repairs are done.
"You have a white elephant that you've just got to stick in the back of your lot and watch it depreciate," Kaufman said.