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GM Recalls Midsize Cars

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General Motors Company (GM - Analyst Report) plans to recall 473,841 units of midsize cars in the U.S., Canada and Mexico in order to fix their defective transmission. As many as 426,240 units will be recalled in the U.S., 40,029 units in Canada and 7,572 units in other markets. It will include 2007-2010 Chevrolet Malibus, Pontiac G6s and Saturn Auras, all with four-speed automatic transmissions.

GM noticed that transmission cables in the vehicles can break, causing the shifter to show that the car is in park when it is actually in gear. The problem could cause the cars roll away unexpectedly.

The automaker first detected the problem when it was gathering data for a U.S. government investigation related to a problem with transmission cables. However, it has not yet received any reports of injuries but four crashes related to the problem.

GM dealers have decided to put a retainer over the end of the cables or replace them to prevent that part from fracturing. The vehicle owners will be notified soon for the free repairs.

GM also plans to recall 6,475 units of Chevy Sonic subcompact cars globally in order to fix their faulty turn-signal bulb. It would affect 4,716 cars in the U.S. and 1,759 in other markets. They were manufactured between May 29 and August 29 at GM's Orion, Michigan, plant.

GM has not yet received any reports of crashes or injuries due to the problem in Chevy Sonics. Its dealers will reprogram an incorrectly calibrated module for the cars. The vehicle owners will be notified by letter beginning October 3.

Automotive safety recalls were brought into focus by media after Toyota Motors’ (TM - Analyst Report) announcement of the largest-ever global recall of 3.8 million vehicles in September 2009, triggered by a high-speed crash that killed 4 members of a family.

Later on, a string of recalls has led Toyota to face numerous personal injury and wrongful death lawsuits in federal courts. The Transportation Department of U.S. had also imposed a fine of $48.4 million on the company due to late recall of millions of defective vehicles.

GM seems to be very cautious about finding and fixing the defects in their vehicles in order to keep its brand value intact. Last month, the company made four sets of recalls.

Those recalls include 44,668 units of Chevrolet Sonic subcompacts for faulty windshield washers, 38,000 units of Chevrolet Impala police cars in North America for defective control arms, 10,315 units of full-size vans due to faulty fuel filler pipes and 249,260 units of midsize sport utility vehicles (SUVs) for a potential fire hazard led by an electrical short.

GM, a Zacks #3 Rank (Hold) company, reported a sharp 41% fall in profits to $1.49 billion or 90 cents per share in the second quarter of the year from $2.52 billion or $1.54 in the same quarter of 2011. Nevertheless, profits exceeded the Zacks Consensus Estimate by 15 cents per share.

Revenues in the quarter fell 4.5% to $37.61 billion, which is lower than the Zacks Consensus Estimate of $37.98 billion. Unit sales rose 3% to 2.39 million vehicles from 2.32 million vehicles in the second quarter of 2011. The automaker occupied a worldwide market share of 11.6% during the quarter, down from 12.3% a year-ago.

Adjusted earnings before interest and tax (EBIT) dipped 28% to $2.12 billion from $2.96 billion in the second quarter of 2011. Operating profit ebbed 26% to $1.82 billion from $2.45 billion a year ago.

The decline in profits and revenues was attributable to strengthening of U.S. dollar against most of the major currencies as well as weak macroeconomic conditions globally, especially in Europe and South America.

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