You would think America's largest automaker, General Motors, would be a lemon for both investors and consumers. It's announced 54 recalls that have impacted nearly 26 million vehicles in the U.S. and wrote down $2.5 billion in losses because of those recalls in just six months.
Yet compared to last June, sales have climbed 1 percent and the stock has seen double-digit growth. What's fueling the surge at the height of GM's recall crisis?
"If you think about how far car technology, safety features and infotainment has come in the past 5 to 10 years, it's definitely head and shoulders above the old product," explained Edmunds.com Senior Analyst Jessica Caldwell. "I think that some of these people that are coming in for the recalls are actually leaving with new cars and that has inevitability helped all of GM's brands."
GM is working to repair its image after it became public that at least 13 deaths were linked to its cars' faulty ignition switches.
This week, the company established a compensation fund handled independently by compensation expert Ken Feinberg that would pay the claims of victims and the families of victims who were affected by the defect. The fund has no cap on individual awards and will be accepting claims from August 1 through the end of the year.
"Technically, General Motors, being a new company since they've come out of bankruptcy, does not have to compensate victims or the families of victims for some of these claims, but that would be a public relations disaster for the company," said Reuters Managing Editor Paul Ingrassia. "So they absolutely had to do this."
Despite the high rate of recalls recently from automakers like GM and Toyota, car sales overall have climbed back to pre-recession levels.
In June, sales have hit a seasonally adjusted annual rate of 17 million for the first time since 2006. With such demand, the deals aren't as sweet for new car buyers as they were during the recession, but Caldwell says there are definitely still deals to be had.
"You have a lot of factors that are helping shoppers get into cars," remarked Caldwell. "I think low-finance loans is a big one as is leasing. With those generous deals out there, a lot of people are opting to buy a car."