A billion here, a billion there and, sooner or later, it adds up to real money, according to an adage once popular in Washington, and something that General Motors shouldn’t ignore after its poor first-quarter earnings report, a net profit of barely $125 million.
Writing off a whopping $1.3 billion to cover a flood of recalls during the January to March quarter nearly ended the long string of profits the automaker has posted since shortly after emerging from bankruptcy in mid-2009. And by most estimates, GM will likely be spending a lot more before it can put behind it the scandal triggered by the delayed recall of 2.6 million vehicles for defective ignition switches.
The bigger question is whether the Detroit maker can salvage a reputation that had only recently begun to recover from the embarrassment of filing for Chapter 11 bankruptcy protection in the first place. Yet, surprisingly, despite all the recalls, the hearings on Capitol Hill, the lawsuits, Americans are still buying GM products – which are generally getting more positive reviews than they have in decades.
The recall crisis has been “overshadowing our overall results,” GM Chief Financial Officer Chuck Stevens told CNBC. In “North America, excluding the recall, earnings were actually up $500 million year-over-year with margins up just over 8 percent."
Indeed, in March, when GM rapidly expanded the number of vehicles affected by the ignition switch defect – while acknowledging a variety of other problems bringing its recall total for the quarter to 7 million vehicles, GM sales rose a solid 4 percent. Despite all the headlines, the maker’s showrooms have felt relatively little impact.
There seems to be a schism in how American consumers have viewed the news. A new study, the YouGov BrandIndex Buzz score, shows that GM has clearly taken a hit to its corporate image over the last several months. On a scale ranging from +100 to -100, the overall domestic auto sector has been averaging around 10 to 12. But since the ignition switch scandal began, GM has seen its overall score dip as low as -33, recovering only slightly in recent days.
That is still better than the -63 score Toyota generated during the worst of its own recall problems in 2010. And GM’s leading U.S. brand, Chevrolet, is running at a roughly neutral score, despite several of its products being targeted by the ignition switch recall.
GM strategists have recognized they have what Anthony Johndrow, a strategist at New York’s Reputation Institute, has called a “short runway” to deal with the crisis – something GM CEO Mary Barra has attempted to do by taking the lead in the crisis, rather than turning it over to corporate apologists and lower-level managers. She has repeatedly apologized for the automaker’s transgressions and has launched an internal investigation that has already resulted in what is expected to be a broadening management shake-up.
Bob Ferguson, the head of the Cadillac brand, and an adviser to Barra on handling the scandal, has warned that it could take two years before the maker can get past the recall scandal. And that would likely involve settling any case the Justice Department might bring, never mind dealing with lawsuits related to the issue.
But while the financial impact will almost certainly drag on, the March sales numbers suggest that GM can recover at the showroom level a lot more quickly.
Some in the auto industry like to live by another adage, that only three things really matter to buyers: product, product, product. And there, GM is finally delivering the goods.
It has been generating a wealth of third-party kudos for a wide range of new models, such as the new Cadillac CTS, the latest Motor Trend Car of the Year. Influential Consumer Reports magazine positively gushed about the new Chevy Impala sedan, while the Chevy division swept the 2014 North American Car and Truck of the Year awards with its Corvette Stingray sports car and Silverado pickup – both models taking a variety of other awards, as well.
Meanwhile, GM itself has been getting its fair share of endorsements, the maker toppling long-time leader Toyota to become the highest-ranked manufacturer in the most recent J.D. Power Initial Quality Survey, a measure of off-the-assembly-line quality. The Cadillac and Buick brands also took top honors as the best luxury and mainstream brands in Power’s annual Customer Service Index.
But there’s another factor that can help GM overcome its problems at home. The reality is that the maker now sells about two-thirds of its vehicles abroad – more in China than in the U.S., in fact, GM is battling German rival Volkswagen for dominance in that booming Asian market.
Of course, problems can develop overseas, as well. GM has lost $18 billion in Europe since 1999 and is only now gaining traction with its latest turnaround plan. And its latest quarterly earnings report shows a big hit, of all things, from Venezuela’s restructuring of its currency.
But for those who watch the daily news and think that the first quarter numbers show GM down and almost out, they might need to think again. The maker’s 2009 bankruptcy makes it clear that no company, no matter how big, is invincible. But as the latest sales numbers counter, GM still has a strong and loyal following – and an opportunity to win back shoppers if it can prove it will do right by them.
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