As published reports indicate the Department of Justice is preparing a criminal investigation of General Motors and the recall of more than 1.3 million older, discontinued models because of ignition problems, the automaker is offering $500 to owners of these units to put toward the purchase or lease of a new vehicle.
But what about the units that might be in dealer inventory? There could be dozens of these units sitting on “value auto” lots of franchised groups or at buy-here, pay-here stores that cater to deep subprime buyers who might be a good fit for a Chevrolet Cobalt, Pontiac G6 or Saturn Ion — some of the models included in GM’s campaign.
Edmunds.com senior analyst Jessica Caldwell told Auto Remarketing on Wednesday that, “I don’t know how well informed people are about the situation, especially considering that these are older cars so they’re not necessarily commanding top dollar anyway. For example, the Saturn Ion goes back as far as 2003 so you’re talking about an 11-year-old vehicle. How much are you really going to be able to take off the resale value than what it costs at this moment?
“You mention buy-here, pay-here; people who are in that situation usually that’s their only option to buy a car so there’s not as much selection or flexibility in pricing because they’re kind of boxed in,” Caldwell continued. “I wouldn’t necessarily suspect a huge hit on some of these residuals just because these vehicles are so much older. The Cobalt, for example, was a compact car, not a $100,000 car to start with so it’s rather devalued at this point anyway.”
Auto Remarketing posed a similar question to Kelley Blue Book senior market analyst Alec Gutierrez, who offered some specific figures for used-car managers to consider.
“We don’t believe that this offer or the recall itself will have much, if any, impact on the values of impacted vehicles in the long term,” Gutierrez said. “With that being said, dealers with inventory currently on their lot might see a short-term drop in what consumers are willing to pay for these vehicles, at least until we are sure that the fix being implemented completely addresses the issue at hand.
“In other words, we may see a short-term dip in values for these vehicles, likely less than 3 percent, but long term we don’t expect to see sustained downward pressure on these values,” Gutierrez said.
More Details of $500 Offer
Details of GM’s plan to give $500 to these vehicle owners came to light when the National Highway Traffic Safety Administration posted GM’s responses to regulators’ questions on the agency’s website on Wednesday.
The OEM told NHTSA this offer toward the purchase or lease of a new Chevrolet, Buick, GMC or Cadillac vehicle is valid only until April 30. Meanwhile, the automaker is still making plans to offer repair services at franchise dealerships to replace the ignition body.
OEM officials said recall announcements went out to vehicle owners this week, repeating recommendations to use only the key itself be used in the ignition. Investigations determined extra weight on key rings may allow the key to unintentionally move or switch to the “accessory” or “off” position, turning off the engine and most of the electrical components on the vehicle.
GM expanded this noteworthy recall on Feb. 25. In addition to 2005 through 2007 Chevrolet Cobalts and Pontiac G5 as well as the Pontiac Pursuit that’s sold in Canada only, GM separately recalled 2003 through 2007 Saturn Ions, 2006 through 2007 Chevrolet HHRs, and 2006 through 2007 Pontiac Solstice and 2007 Saturn Sky models.
The affected U.S. vehicle population, including those vehicles first recalled on Feb. 13, totals 1,367,146.
But that amount isn’t a new list for the business development centers at GM dealerships to leverage to move new metal.
In a message to Auto Remarketing, GM spokesperson Alan Adler said, “In keeping with our commitment to help customers involved in this recall, a special $500 cash allowance is available to purchase or lease a new GM vehicle.
“We have been very clear in our message to U.S. dealers that this allowance is not a sales tool and it is only to be used to help customers in need of assistance. Neither GM nor its dealers will market or solicit owners using this allowance,” Adler said.
More Government Investigations & Potential Impact
On Wednesday, Bloomberg reported the Department of Justice is opening a criminal investigation into how GM handled this recall as data about problems with these vehicles reportedly dates back almost 10 years. That development comes on the heels of NHTSA seeking answers to more than 100 questions that had to be met before a deadline that would have triggered a $35 million fine as well as the U.S. House Energy and Commerce Committee organizing a future hearing on Capitol Hill.
“GM is under a microscope,” Caldwell said. “Following bankruptcy, a lot of people have strong opinions about that company that they might not have about other auto companies. Also with the new CEO, Mary Barra, I think she’s also very scrutinized like Marissa Mayer at Yahoo. Sort of every move she makes is widely reported. I think everyone is looking at this very closely.”
In the Bloomberg report published here, AutoPacific analyst Dave Sullivan took a similar view.
“Barra is getting her feet thrown right into the fire,” Sullivan told Bloomberg. “There’s no way she is going to come out of this looking like some kind of hero. The best thing is to be honest and upfront and hopefully put this to bed as quickly as possible.”
Despite the recent news, Caldwell indicated Edmunds.com search traffic of users looking at Chevrolet models hasn’t waned since the recall.
“It seems as if people are still interested in the brand. They’re not necessarily departing in droves away from it. But it does seem like this whole situation is gaining steam.” Caldwell said. “I think a lot of folks tune out recalls until they hit this fever pitch. When you start hearing of a Department of Justice investigation, I think that’s when people start to tune in a little bit more.
“The next few weeks, we’ll see if there will be any impact. Other companies have gone through this. While they may feel the pinch in the short term, it seems like there isn’t any real long-term effect,” she continued.
Gutierrez expects a similar fate for GM like what happened to Toyota as it navigated the unintended acceleration turmoil seven years ago.
“GM’s decision to offer a $500 cash allowance for owners of recalled GM products is one that is well-intended, but not likely to make much of an impact on the perception of their brand or the likelihood of a current owner to remain in the fold,” he said. “For those already considering a new GM this is certainly an added bonus, but is likely not enough to make a significant difference to those that worry about the longevity and reliability of GM’s current and future products.
“This seems similar in scale to the Toyota and Ford/Firestone recalls of the past. In each of those cases, values took a short-term hit before rebounding and leveling off long term,” Gutierrez added.