GM, Takata Take Brand-Name Beatings Amid Recalls, but U.S. Auto Sales Still Strong

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Researched by Industrial Info Resources (Sugar Land, Texas)--Last week, General Motors (NYSE:GM) (Detroit, Michigan) announced that it would recall 3.4 million vehicles after it found that its keys could cause the ignition switches to move out of position, especially if they carry lots of weight (e.g.: heavy key rings), which can shut off the engine and disrupt power steering. The problem is proving costly for the company, with its expected second-quarter charge for recall expenses raised to $700 million from $400 million. This brings GM's total number of recalls for the year to 44, affecting 17.73 million vehicles in the U.S. alone.

Industrial Info is tracking $3.4 billion in active and unconfirmed projects involving GM, including almost $1 billion in projects that are set to kick off within the next 12 months. The biggest of these projects is the $350 million expansion of an assembly plant in Spring Hill, Tennessee, and the $343.4 million expansion of a transmission manufacturing plant in Romulus, Michigan. The Spring Hill project, set to kick off in December, includes the installation of two assembly lines to increase plant capacity to produce two new mid-size vehicles; the Romulus project, set to kick off next month, includes the installation of a new 10-speed automatic transmission line.

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Despite the announced recalls, GM is reported a solid 13% sales growth in May, although it has yet to be seen how the latest recall will affect the company's brand name. In February, GM announced it would recall 2.2 million vehicles for a separate problem with the design of the ignition switch. GM acknowledged that this problem caused at least 13 deaths, although some who are suing the company say that the death toll is higher.

One of the GM models recalled was the Chevrolet Cobalt, which was manufactured at the Lordstown Assembly Plant in Warren, Ohio. The plant--which now manufactures the Chevrolet Cruze, a high-selling replacement for the Cobalt--is set to undergo a $2.5 million semi-annual shutdown next month. The two weeks of maintenance--expected to cover vehicle assembly, stamping, body shop and paint facilities at the complex--are scheduled to be completed toward the middle of July.

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But GM isn't the only company with such problems. Earlier this week, Honda Motor Company Limited (NYSE:HMC) (Hamamatsu, Japan), Mazda (Fuchu, Japan) and Nissan (Nishi-ku, Japan) recalled about 2 million U.S. vehicles following complaints that air bags made by Takata Corporation can explode and project pieces of metal. According to The New York Times, at least 10 million of the more than 30 million cars recalled in the U.S. so far this year have been related to air bag problems. Earlier this month, the National Highway Traffic Safety Administration opened an investigation into the air bag problems.

Three suppliers make up about 75% of the global air bag market: Takata (20%), TRW Automotive (Livonia, Michigan) (20%) and Autoliv (Stockholm, Sweden) (35%). Autoliv, which has not recently seen any such complaints, has two seven- to 10-day maintenance shutdowns planned in the third quarter and fourth quarter of this year at its air bag inflator manufacturing plant in Ogden, Utah, each valued at $1 million.

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Investigations and the broader legal process can take years. In March, Toyota Motor Corporation (NYSE:TM) (Aichi, Japan) settled with the U.S. Justice Department to the tune of $1.2 billion, ending a criminal probe into its handling of safety problems that first came to light in the fall of 2009. According to U.S. Attorney General Eric Holder, the $1.2 billion payment "represents the largest criminal penalty imposed on a car company in U.S. history." However, Toyota, like GM, saw solid sales growth last month.

Industrial Info is tracking more than $5.6 billion in active and unconfirmed projects involving Toyota, including the $100 million expansion of a disc brake manufacturing plant in Lebanon, Ohio. The project, which involves constructing a 65,000-square-foot building addition, is set to be completed in November.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.