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GM Recalls Could Lead to Profits at Some Car Dealerships, Unhappy Customers at Others

GM Recalls Could Lead to Profits at Some Car Dealerships, Unhappy Customers at Others

This year may see a record number of safety recalls for vehicles, with General Motors recalling 20 million cars in the first six months of 2014.

The reason for the recalls stems from the lowered standards for safety recalls; manufacturers have to recall cars with potential defects for liability purposes. Most recently, GM issued a recall for Chevrolet’s 2013-2014 Cruze sedans with Takata air bags, which could fail to inflate in the event of a crash.

However, the news isn’t all bad for car dealers, says one expert. After these recalls are issued, dealerships have the opportunity to make money, says Michelle Krebs, a senior analyst at AutoTrader.com.

Although the auto makers cover the cost of repairs resulting from the recall, customers still have to take their cars to a dealer in order to have a car inspected and/or fixed. In addition to performing the necessary work on the car, maintenance departments at dealerships “may be able to suggest [the customer] do an oil change, suggest some other maintenance things, that may actually make [the dealer] more money,” says Krebs.

Many car dealerships make a good portion of their profits by providing parts and services, in addition to their extended warranties. A warranty written 48/50,000, meaning that it’s good until a car has been owned for 48 months or has been driven 50,000 miles, will bring customers in over those years for maintenance — some of it covered under warranty, and some not.

Krebs points out that brands such as Lexus and Saturn created brand loyalty, despite many early recalls at their inceptions, by performing the necessary repairs swiftly.

However, the challenge for GM is the slow pace of the required repairs, according to Bill Fox, an upstate New York dealer of Chevys and other makes who also serves as vice chairman of the National Automotive Dealers Association.

Fox states that fewer than 10 percent of cars recalled by GM have been fixed, for problems such as the faulty ignition switch in several models over the last decade. A shortage of parts has created a backlog, and GM has had to offer incentives to its workers and dealers to speed up the repairs process.

Fox also says that while some dealers benefit during recalls, there isn’t much profit if customers have to wait too long for repairs, a problem that GM is encountering at the moment.

Consumers can find out if their GM vehicle has been recalled on GM’s Recall Center on the company’s website.

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