Biggest Ever Recall By General Motors Company (NYSE:GM)
General Motors Company (NYSE:GM) hit the headlines amid the recall of 1.46 million cars in the world’s biggest auto market. This is believed to be one of the largest safety recalls where General Motors Company would recall 240K Chevrolet Sail subcompacts manufactured during 2009 to 2011 and approximately 1.2 million Buick Excelle cars build during 2006 to 2011. The recall was initiated following the identification of defect with the fuel pump brackets that might crack over a long run, even leading to fuel leaks in extreme cases.
The Recall Impact
The Wall Street Journal reported that fuel brackets will cost the company approximately $80 per unit and at this price – the aggregate cost of recall may exceed $120 million besides intangible cost of losing prestige. However the global leaders including Toyota Motor Corp (ADR) (NYSE:TM) as well as the arch rival Volkswagen AG (ADR) (OTCMKTS:VLKAY) have also faced the high-volume recalls in China over the past 4-5 quarters.
As a reminder, the cars were manufactured locally by Shanghai General Motors as a part of General Motors Company (NYSE:GM)’s joint venture with SAIC Motor. Moreover General Motors is the biggest foreign carmaker in China since 2005 when it took over the German automaker Volkswagen AG (ADR) (OTCMKTS:VLKAY).
Concern for Domestic Carmakers
As far auto industry is concerned, China must be considering the strategy to improve the market share of domestic competitors which are gradually losing the ground against dominating foreign automakers. In 2013 domestic brands conquered 40% of market share, losing the feet from 41.3% market share in 2012. For the first eleven months of calendar 2013, car sales increased to 15.1% in aggregate and for domestic brands it was just about 11.5%.
The sales growth of foreign automakers in China is certainly stunning despite the alleged policy which requires foreign companies to transfer technology to domestic carmakers. However the results of such policy implementation are evident as SAIC Motor Corp’s Roewe is competing with General Motors Company (NYSE:GM)’s Buick which was made as a part of GM-SAIC joint venture.