General Motors Co. (GM) has been fortunate to avoid a collapse of new-vehicle sales since the ignition-switch safety crisis blew up in January, engulfing the automaker in litigation, a federal criminal probe and Congressional inquiries.
Used GM vehicles – models affected by the recall – meanwhile have taken a substantial hit in value, according to a study by iSeeCars.com, an online search engine. GM’s new-vehicles sales are up 3.5% in the U.S. through July in a market that has risen 5% in terms of unit sales.
(Holders of GM stock have gotten whacked as well since January, the value of shares falling nearly 18%, compared with a S&P 500 Index that has risen 4% during the period.)
The operators of the search engine said they created an algorithm to determine the market value of six GM cars affected by the recall, based on asking prices of used vehicles on dealer lots from March to June 2013, compared to a year later. The change in value also was compared to the dropping value of all used cars in the U.S., which has been occurring for the past few months. The sample size was 11 million cars.
The average price of the recalled GM models dropped 14% from March to June 2014, compared to a year earlier and adjusted for inflation. The drop in value of all similar models was 6.7% during the same period.
Phong Ly, chief executive and co-founder of iSeeCars.com said “recalls are playing a role in motivating sellers to sell their used cars and at a lower price point than they otherwise would.” His company provides free information to car shoppers and sells sales leads to dealers.
The models most affected, according to the study, were Chevrolet Cobalt, Pontiac G5 and Saturn Ion. Somewhat less were Chevrolet HHR, Saturn Sky and Pontiac Solstice. Ly said the “unique” designs of Sky, Solstice and HHR “contributed to their desirability and helped them hold their value a bit better.”
A GM spokesman said “ALG and KBB are industry leaders in assessing the current resale value and related forward projections. Based on their input and reporting, we feel confident our used car values are trending consistent with segment competition.”
One bit of comfort for owners of GM models not affected by the recall: The average drop in price during the period studied by iSeeCars.com is consistent with trend of all other vehicle models.
The torrent of difficulties for GM shows no signs of abating anytime soon. This week the automaker disclosed that it had received a subpoena from the U.S. Justice Department to provide documents in connection with subprime lending to finance the purchase of its vehicles. Prosecutors aren’t saying much; a recent story in the New York Times described the growth of subprime automotive lending, a sensitive matter following the collapse of real estate caused by subprime lending in that sector.
A GM executive said she understood the federal probe into auto lending to be aimed at all automakers.
GM surely is looking forward to a day very soon when the word “troubled” is no longer attached to its name.
This piece has been updated to include comment from GM.