GM Recalls Spur Lawsuit by Orange County, California -- Update

UPDATE: Bloomberg News reports that the district attorney of Orange County, California, has file a lawsuit against General Motors Co. (NYSE: GM), accusing the automaker of concealing defects in an effort to deceive buyers.

At about 2:30 p.m. Monday shares of General Motors Co. (NYSE: GM) were halted as the company announced six recalls covering 7.6 million vehicles in the U.S, in addition to four recalls affecting more than 428,000 vehicles announced earlier in the day.

More than 7.3 million cars from model years 1997 to 2014 have been recalled to fix an ignition switch defect that led to “inadvertent ignition key rotation.” Three fatalities occurred in crashes of older model full-size sedans being recalled for this defect, but GM said there is no conclusive evidence that the defective switch caused those crashes

GM also recalled 392,459 full-size pickup trucks and SUVs sold in the U.S. along with 53,607 sold in Canada and 20,874 sold in other regions to fix a problem with the electronic transfer case on four-wheel drive versions of the 2014 and 2015 Chevy Silverado and GMC Sierra pickups, 2015 Chevy Tahoe and Suburban SUVs, and 2015 GMC Yukon and Yukon XL SUVs.

This problem could cause the vehicle to roll away if parked. If the vehicle is in motion there would be no power going to the wheels. GM said it is not aware of any crashes or injuries due to this problem.

Those are just the 2 largest of the 10 total recalls GM announced today. Trading in GM stock resumed shortly before 3:00 p.m. today.

GM expects to take a charge in its second fiscal quarter of $1.2 billion including the $700 million it has already announced to pay for the recalls. The company took a $1.3 billion charge in the first quarter. Full-year profits in 2013 totaled $5.3 billion.

The company’s stock appears to be Teflon-coated. Shares are trading down less than 1% at $36.27 in a 52-week range of $31.70 to $41.85. The sort-of good news for GM is that even though a lot of cars are involved, the dollar amounts to fix the cars is not especially large.

And the larger impact from bad PR hadn’t really caught up with GM although forecast sales for June are down sharply. Automakers are scheduled to report June sales tomorrow, so we don’t have to wait long to see if GM is feeling the effect of all these recalls in its bank account.

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