Yesterday (Monday), General Motors Co. (NYSE: GM) recalled 8.45 million more vehicles. The latest round means GM has set a new record for U.S. automaker vehicle safety fixes in a calendar year at 29 million - it's now recalled nearly 3% of the world's total cars.
Recall mania isn't the only hurdle GM stock faces.
In February, GM recalled 1.6 million vehicles. At the time, it was only one in a slew of early 2014 recalls from the likes of Toyota Motor Corp. (NYSE ADR: TM), Ford Motor Co. (NYSE: F), and Tesla Motors Inc. (Nasdaq: TSLA).
But accusations and rumors began to swirl of an even greater problem - an ignition issue with its Cobalt model that GM was supposedly aware of but did nothing about.
A heavy key ring or a "jarring event" could shut off the ignition in some GM vehicles and prevent air bags from deploying properly. Depositions from a 2010 civil lawsuit suggested that as early as 2004, GM knew the Cobalt had an ignition switch that could involuntarily shut off the engine while driving. GM settled that case for an undisclosed amount with the plaintiff - the estate of the 29-year-old pediatric nurse who died in a fatal crash the day after picking up her 2005 Cobalt from the dealer, where she'd taken it for ignition switch problems, according to documents obtained by USA Today.
"This is going to be a legacy issue for years to come," Money Morning Capital Wave Strategist Shah Gilani said of the damage done to GM stock to Neil Cavuto on FOX Business in February.
In a shocking turn, GM owned up to the rumors in a news release on March 12. The automaker said it knew of the faulty ignition switches as early as 2001 - three years earlier than it had previously reported. Then on March 14, the company announced a recall of 1.2 million of GM's crossover SUV models for possible airbag non-deployment on a side impact collision.
Yesterday's recall could have three fatalities linked with them, but it's still unclear whether the "defects including ignitions and electrical malfunctions" at the heart of this 8.45 million batch directly caused the deaths. GM has acknowledged that at least 16 deaths and 61 crashes have been caused by ignition switch-related problems, according to Reuters. Chief Executive Officer Mary Barra and her company have become the center of three investigations, including a probe for criminal intent.
What is clear is that for General Motors' inaction, there's trouble ahead for GM stock...
GM stock enjoyed a 46.75% rise in 2013, before the recalls started. Shares have sunk more than 9% in 2014.
Gilani warned of a GM stock slump back in February - before GM admitted it knew of the faulty ignition switches.
"If I own GM stock, I'd want to look at some floor to get out if it continues to drop - it's going to get hit on this," he said in the Cavuto interview. GM stock then fell 11% over the next two months.
Still, considering the amount of bad press it's been receiving, General Motors stock hasn't taken that much of a hit - yet. Since owning up to knowledge of the defects on March 12, shares are actually up 3.18%. And yesterday's recall only saw the stock slump 0.87% to $36.30 per share. GM is up 2.3% today by 11 a.m.
So, what does this mean for GM investors?
"So far GM is taking ownership, but the stock market has not punished the company yet," Money Morning Chief Investment Strategist Keith Fitz-Gerald said on Tuesday morning.
But Fitz-Gerald said he sees the 29 million recalls ultimately wiping out 50% of profits - perhaps more. That means any investor looking to buy GM stock should wait to get more shares - and then prepare for a volatile ride.
"If we look to Toyota Motor Corp. (NYSE ADR: TM) as an example, the time to buy is after the class action lawsuits get filed," Fitz-Gerald said. "Somewhere in the middle is the sweet spot. But buckle up if you do buy."
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Finding a great "safety play" is a good idea for investors in case U.S. stocks begin to sputter - or even stall. And this "20% catalyst" Money Morning's Executive Editor Bill Patalon has found could send shares of this company soaring...
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