Breakout

Why GM sales are strong, even as a recall scandal worsens

Breakout

Recall? Huh?

It’s becoming clearer than ever that car buyers are unfazed by the deadly safety problems plaguing several General Motors (GM) models. GM notched a 13% increase in sales in May, which was twice what analysts were expecting. Chrysler, which is bouncing back from a long decline, posted a 17% gain in sales, mostly on account of new Jeep models and the popular Ram pickup. At Ford (F), which may be a better basis for comparison with GM, sales rose a modest 3%.

Fleet sales to rental car companies and government fleets explain some of GM’s surge, but retail sales were also strong, as Jeff Macke and I discuss in the video above. Of GM’s four brands, Chevrolet performed best, with a 14% gain. Since Chevrolet also built the Cobalt—which is at the center of a recall controversy involving at least 13 deaths—it seems clear the negative association is doing nothing to deter car buyers from visiting Chevy showrooms. And GM's average transaction prices rose in May, so GM isn't luring buyers with discounts.

The automaker's impressive sales numbers arrive at the same time a new analysis by Reuters suggests the death toll from faulty ignition switches or other related problems could be far higher than GM has acknowledged. Reuters analyzed a government database of fatal accidents and found 74 deaths in GM vehicles under circumstances similar to the known defect, which inadvertently shuts off power to the car while it’s moving. The 13 deaths GM has disclosed involve air bags that lost power and failed to deploy, rendering them unable to protect the occupants. The Reuters tally may include accidents due to factors other than the defective ignition switch, since the details in the database don’t always cite a specific cause of a crash. But competing models from Toyota and Ford had far lower fatal accident rates than select GM models, suggesting the ignition defect or some other safety flaw may have been even deadlier than previously known.

None of that seems to matter to car buyers. Here are four reasons why:

The faulty GM vehicles are no longer for sale. GM’s ignition-switch recall affects six models: The Chevy Cobalt and HHR, the Pontiac G5 and Solstice, and the Saturn Ion and Sky. GM discontinued the Cobalt in 2010 and the HHR in 2011. The entire Pontiac and Saturn divisions were scrapped as part of GM’s 2009 bankruptcy reorganization. So car buyers haven’t seen these cursed GM models in a showroom in at least three years.

GM’s vehicles are vastly improved today. Chevrolet is benefiting from the “halo effect” generated by the fetching new Corvette Stingray. The Impala sedan, newly redesigned last year, has won plaudits as the best vehicle in its class. Smaller Chevy vehicles match up well with the best from Europe and Japan. And GM’s other three divisions—Buick, GMC and Cadillac—have also been turning out well-reviewed vehicles that consumers want to buy. That wasn’t the case at GM a decade ago, when pickup trucks and SUVs got most of the attentions and smaller vehicles were an afterthought.

GM has done a pretty good job addressing the recall scandal. While GM sat on the ignition problem for years—allowing at least a few more fatal accidents to occur--CEO Mary Barra has responded aggressively since taking the top job in January. An internal GM report on the whole problem, due as early as this week, could represent a turning point for GM. If the automaker is fully transparent in the report—identifying executives responsible for the problem, explaining the appearance of a coverup, and so on—GM will take another important step toward putting the problem behind it. GM must also come up with a fair-seeming plan for compensating victims. If GM appears to be stonewalling, by contrast, it will make government investigations more important and generate ongoing controversy.

Some car buyers aren’t even paying attention. The GM recalls and the fatalities associated with the problem have generated dozens of predictable outrage stories in the press—but that doesn’t mean car buyers everywhere are getting the message. In the age of Internet media, people follow the news they choose and tune out what they don’t want to hear. GM products remain popular in many parts of the country—typically far away from coastal media hubs—and loyalists may feel it’s a good time to stick with the company. They might turn out to be right.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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