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GM Recalls 40K Cars for Fuel Leak

GM TM

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General Motors Company (GM - Analyst Report) plans to recall 40,859 cars in warm-weather states in the U.S. due to a problem with their plastic-made fuel pump modules that could crack and cause a fuel leak and fire.

The recall will include Chevrolet Cobalt and Pontiac G5 sedans from the 2007–2009 model years, and Chevrolet Equinox, Pontiac Torrent SUVs, and Saturn Ion sedans from the 2007 model year.

The vehicles meant for recall were sold or currently registered in Arizona, California, Florida, Nevada or Texas. Meanwhile, recall of Chevrolet Cobalt includes owners based in Arkansas and Oklahoma.

GM began investigating the problem in 2011 after receiving report from a dealer about fuel leakage in some vehicles. However, the company has not yet received any reports of fires or injuries due to the problem.

GM dealers will repair the vehicles free of cost. The vehicle owners will be notified by mail about the recall.

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. From the last month, the company made a number of recalls.

Recently, the automaker revealed its plan 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, 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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