General Motors caved in and will recall 7 million vehicles with potentially defective Takata air bag inflators globally after a US safety agency rebuffed the automaker’s petition and put an end to a multi-year dispute.
The National Highway Traffic Safety Administration (NHTSA) on Monday rejected a petition by GM (GM) to avoid the recall, arguing that the “unique” inflator design differences and vehicle features to which the automaker points are “unpersuasive”. The NHTSA reasoned that the data GM provided did not demonstrate that the design difference results in a reduced risk of rupture.
The recalls are due to a design defect, whereby the propellant used in Takata’s air bag inflators degrades after long-term exposure to high heat and humidity and are at risk of explosion. To date, these rupturing Takata inflators, which are used by major automakers, have resulted in the deaths of 18 people across the US and hundreds of injuries, including lacerations and other consequences to occupants’ face, neck, and chest areas. None of the death incidents involved GM cars.
“NHTSA concluded that the GM inflators in question are at risk of the same type of explosion after long-term exposure to high heat and humidity as other recalled Takata inflators,” the agency said. “The defect here poses an unsafe condition caused by the degradation of an important component of a safety device that is designed to protect vehicle occupants in crashes.”
In reaction to the decision, GM said that it disagrees with the NHTSA position.
“Although we believe a recall of these vehicles is not warranted based on the factual and scientific record, NHTSA has directed that we replace the airbag inflators in the vehicles in question,” GM commented in a statement. “However, we will abide by NHTSA’s decision and begin taking the necessary steps.”
Previously, GM had estimated that a recall, including the replacement of the air bag inflators, would incur a cost of about $1.2 billion. The recall covers 2007 to 2014 vehicle models, including the Cadillac Escalade, the Chevrolet Avalanche, Silverado, Suburban and Tahoe and the GMC Sierra and Yukon.
Shares in GM have surged 25% over the past month and are now up 22% on a year-to-date basis, with the average price target of $44.46 suggesting that analysts view the stock as more than fully priced at current levels.
Meanwhile, Deutsche Bank analyst Emmanuel Rosner last week raised the stock’s price target to $48 from $43 and maintained a Buy rating, as the analyst is encouraged by GM’s recent strategic update on its electric vehicle (EV) vision. Rosner praised GM’s management decision to boost investment in the next few years to materially fast-track its EV rollout.
From the rest of the Street, GM scores a Strong Buy analyst consensus with 11 Buys, 1 Hold, and 1 Sell. (See GM stock analysis on TipRanks).
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