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Can GM Sales Continue to Withstand Recalls?

Image: File of Chevrolet Silverado pickup trucks are seen at a dealership in Gaithersburg, Maryland

Chevrolet Silverado pickup trucks are seen at a dealership in Gaithersburg, Md., in this May 2013 file photo. General Motors' sales have withstood its recall crisis so far this year. GARY CAMERON / Reuters

It has so far recalled more cars than any automaker in a single year. It is the target of House and Senate inquiries, as well as a Justice Department criminal probe. And it could be looking to spend more than $1 billion as part of a victims’ compensation fund. Yet for all its troubles, General Motors has fared surprisingly well in the U.S. new car market, with sales this year outpacing the overall market turnaround.

But could its luck be about to run out? Tuesday's June figures show GM sales took a slide at a time when the maker announced more than a dozen individual recalls and was blasted for “incompetence and neglect” in an internal study of its handling of safety-related problems.

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“This could be a case of the death-by-a-thousand-cuts dynamic,” suggests Anthony Johndrow, a managing partner of New York’s Reputation Institute, a firm that focuses on corporate image-building. “You lose resilience when your reputation is injured, and the more hits you take, the more damage you suffer.”

Despite being the focus of constant headlines since it announced the recall of 2.6 million vehicles due to a fatal ignition switch defect in February, GM has somehow dodged the proverbial bullet, at least until recently. Its reputation had actually been improving, with an annual survey of consumer attitudes by the Reputation Institute released in May giving the maker a moderately positive score of 69, up a full 10 points from the 2013 study.

To put that into perspective, Johndrow said, that would suggest more than twice as many consumers were willing to consider a new GM product compared to the year before. Why is a matter of debate, but analyst Joe Phillippi, of AutoTrends Consulting, notes that the vehicles covered by the initial ignition switch recall are no longer in production. In fact, four of GM’s most troubled brands were abandoned after the maker’s 2009 bankruptcy.

Quality control at GM 4:14

GM showrooms are today filled with newer models that have been receiving some of the maker’s best reviews in decades, such as the Chevrolet Impala, the new Chevy Silverado pickup — the latter named North American Truck of the Year in January – and the Cadillac CTS.

And if anything, demand for those new models has been running well ahead of the overall market upturn. In May, GM sales were up 13 percent from the previous year, delivering the company’s best performance in seven years.

But the question is whether the maker’s momentum is about to sputter out. According to TrueCar.com, GM sales for June were expected to be in negative territory, but in fact the company posted a modest rise, albeit just 1 percent, compared to June 2013.

Not everyone is particularly concerned. Larry Dominique, a TrueCar vice president, contends that GM continues to do well, and suggests that the primary reason for its weak June is a conscious decision to trim back on costly incentives. The tracking firm estimates they were slashed by about 11 percent for the month.

“Your reputation can bounce up, but it can bounce down even quicker.”

If anything, CEO Mary Barra actually may be “trying to show how strong GM is,” that it can reasonably maintain volume and share at a bad time. “She’s not throwing cash out” at the problem, Dominique argues.

But not everyone buys that argument. The Reputation Institute’s Johndrow warns that its problems may finally be catching up with GM where it matters most: in the showroom.

“Your reputation can bounce up,” says Johndrow, “but it can bounce down even quicker.”

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