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General Motors (GM) Permitted to Delay Takata Airbag Recalls


General Motors Company GM has been permitted by U.S. auto safety regulators to delay the recall of a large number of trucks related to the Takata airbag explosion issue, to Aug 31, 2017. The recall of these vehicles was initially slated to begin on Dec 31, 2016.

The company has been allowed more time to prove that these vehicles are safe, which would also help it from taking a large financial hit. This decision, which is unusual for the National Highway Traffic Safety Administration, allows General Motors to carry out long-term tests on the vehicles with the Takata airbag inflators, including trucks as well as SUVs.

These inflators have caused 11 reported deaths in the U.S. and 16 globally. General Motors recalled 2.5 million vehicles in May but stated that its inflators were different from the ones used in vehicles that were involved in the deaths. Per the tests carried out, the Takata airbags contain a chemical that can deteriorate when continuously exposed to high temperatures and airborne moisture, which can make it burn quickly, blowing apart a metal canister and throwing shrapnel at drivers and passengers.

General Motors claims that its inflator’s vents are bigger and have stronger steel caps than that of the inflators that have been linked to the deaths. Moreover, its trucks have solar-absorbing glass which allows the cabin temperatures to remain low, keeping the inflators cooler.

The automaker filed a petition to delay the recall and carry out tests last week. The petition received approval on Nov 21. The testing could help the company prevent the recall of 6.8 million vehicles, which would cost about $870 million. Moreover, the delay pushes the timing of the recall into the administration of President-elect, Donald Trump, who has expressed his desire to remove unnecessary government regulations.

While the costs of recalls are initially borne by automakers, the parts manufacturers compensate them eventually. However, Takata is currently under financial distress. The company is looking for a buyer, while it is plausible that its North American division will file for bankruptcy. This lowers the probability of reimbursing automakers including General Motors for the recalls.

Safety advocates have called the decision a backroom deal that keeps the public in the dark. It has also been said that in the past, while some automakers’ vehicles were not recalled initially as they did not cause any problems, eventually they were recalled.

Senator Bill Nelson also stated that when Ford F carried out tests on 1,900 Ranger inflators, no abnormality was detected. However, post the tests, a Ford Ranger pickup’s Takata inflator led to a death. He also said that a delay was a mistake, which would further encourage other automakers to ask for the same, putting car owners and drivers at risk.

Zacks Rank

General Motors currently holds a Zacks Rank #2 (Buy).

Other well-ranked companies in the auto space include Allison Transmission Holdings, Inc. ALSN and America's Car-Mart Inc. CRMT, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Allison Transmission has a long term growth rate of 11%.

America's Car-Mart has a long-term growth rate of 45.54%.

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