Will GM Be Forced To Pay For Its Recall Transgressions?

As the recall fiasco that killed more than 13 people, and has consumed General Motors, marches on, one question that weighs heavily is whether or not GM will be forced to pay for it. Not with its tiny $35 million fine, or with civil penalties, but with consumers. And these charts from ALG may give us some answers.

Unluckily for us, meaning citizens of Planet Earth, but luckily for us, meaning fans of data, this is not the first terrible recall fiasco to ever tumble out of an automaker. Two of which that immediately come to light is Toyota's issue with unintended acceleration, which may or may not have been the result of the elderly putting their feet on the wrong pedal, and the time Ford couldn't seem to stop its SUVs from flipping over, which may or may not have been caused by faulty tires.

Either way, both were accompanied by loud, blaring headlines, attaching the specter of death to the company's brand name. Much like the situation GM finds itself in now.

So one of the ways in which we can find out the actual price GM might pay is by looking at those past recalls from other automakers, examining brand effects, and looking at sales figures. And that's exactly what the incredibly bright people over automotive industry research firm ALG did, in their May-June 2014 Industry Report.

Short-Term Losses

The first aspect we can examine is whether or not big recalls, and the ensuing publicity, have any short-term sales effects. Sales effects in the wake of Toyota's floormat recalls are exemplified not only by Toyota Camry sales, but also by sales incentives, a reflection of dealers trying to push slow-selling cars out the door, and the amount of Camrys backing up in inventory.

Toyota issued its first major recall because of the issue on November 2nd, 2009. Camry inventory built up quickly, but the most noticeable effect was that it peaked a full three months after the first 3.8 million vehicles were recalled:

Will GM Be Forced To Pay For Its Recall Transgressions?

If you look at the chart above, you can see that Camry inventory dipped to below a 20-day sales supply in August 2009, which can reflect a hot-selling car, to almost a 140-day supply of cars in February of 2010. And in case you think that's just because the market in general was slow, the average industry supply for midsize cars looks to be around 70 days, nearly half of what it was for Toyota Camrys.

In most respects, Camry sales seem to reflect the market in general, even outperforming it. But as soon as news of the recall starts filtering its way through to the car-buying public, the Camry ended up doing a lot worse than its competitors. And the Camry oversupply, compared to the rest of the industry, lasted long after the initial peak.

Ford, similarly, saw a five percent market share segment in 2001, as ALG notes, at the peak of the Explorer rollover recalls.

Long-Term Damage

But if we want to go deeper, we can look at consumers' brand perception, and the long-term impact that has, rather than just short-term inventory figures of single models. And this is where it gets weird, and worrying, if you're a GM competitor.

Will GM Be Forced To Pay For Its Recall Transgressions?

If you look at the chart above, which measures a metric known as Brand Pricing Score, which, according to ALG, "measures the value of a brand when all other factors—such as features, specs and other vehicle aspects—are stripped away." It gives a true way to gauge just how people feel about a certain brand at any time.

And with that, we can really see some long term effects, and not just for the main players involved. In Toyota's case, the company's brand started to hurt about one quarter, or four months after the peak of the crisis. In Ford Trucks' case, it looks like the brand began to hurt a full nine months after the crisis peak.

That's huge, and it may be why GM sales haven't taken an immediate dip.

But one of the weirdest parts about both the Toyota and Ford recall fiascos is that both brands didn't just go down alone, they took other, similar brands with them. In Toyota's case, Honda was also strongly associated with the issue. In Ford's case, Chevy suffered for the former's transgressions.

But, as ALG points out, the negative effects for a few brands can mean positive effects for others:

We can look at larger trends in the market to give some context to these drops, recognizing the cross-elasticity between competitors that could allow for positive changes at other brands to further deepen the declines. During Ford's troubles, the public mind was moving further towards the idea that the Japanese players had unassailable quality, and indeed during that time all three major Japanese brands saw advancements in their Brand Pricing Scores in the used market.

During Toyota's unintended acceleration news cycle, though, domestic investment, especially in the car sector, was bearing fruit; Ford, GM and Chrysler, as well as Korean brands Hyundai and Kia, had given consumers new reasons to consider their products. The BPS-Used scores for those brands rose in concert with the drops from Toyota and Honda.

That's right – as Ford fell, Toyota's fortunes rose. And as Toyota fell, Ford's fortunes went up. So it's not like all is doom and gloom.

But Wait, There's Hope

And it's not like all is doom and gloom for GM, either. Because both Toyota and Ford seemed to have recovered relatively quickly, with public perceptions returning to normal in a matter of a few years, rather than decades.

For Toyota, the brand reached parity with Honda in just two years. Ford has also since recovered.

So what does this all mean for GM? Well, we here at Jalopnik aren't fortune tellers with crystal balls, and it's a bit too early to tell the real impacts. We can't say GM will suffer forever, or that the fact that their cars were responsible for killing a few people won't move the market at all, whatsoever.

But by looking at Toyota and Ford, GM's trajectory may look a bit similar. It might not be seeing much impact now, but as the news filters through the public consciousness, we might see a delayed impact, where GM small-car sales seem to start slogging through molasses.

Will GM Be Forced To Pay For Its Recall Transgressions?

That may be followed by your friend who knows nothing about cars saying "oh, small Chevys? No thanks, I don't want to be killed in a metal coffin."

And after a few years, everything should stabilize.

Or nothing might happen at all, because the universe is strange like that, sometimes.

But it looks increasingly likely that GM will end up shelling out a bunch of money, just not directly. How much, only time can tell.

Head on over to ALG to read their full report, it really is fascinating.

Photo credit Getty Images. Charts are copyright ALG, used with permission.