Latest Recalls Add to GM's Woes

NEW YORK (TheStreet) -- I want to like General Motors (GM). I really do.

I believe in its leadership from CEO Mary Barra -- after all, she walked into the situation, she didn't create it -- and the stock has an attractive valuation and a dividend yield north of 3.5%. 

But there are just too many problems. And each day, it seemingly gets worse and worse. Just last week, I wrote Seriously, General Motors - These Recalls Are a Disgrace. This was after the company announced a whopping 2.7 million vehicle recall. 


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At this point, detailing the exact reasoning for the recall doesn't really matter. With it, the automaker surpassed 11 million vehicles in its recall efforts this year. And we're only in May. 

The press release also said the company expects to take a $200 million charge in relations to the recall, adding to the $2 billion in first-quarter charges it took, ($1.3 billion of which is related to recall costs). 

But don't worry. It gets better. 

Only five days after announcing the 2.7 million vehicle recall, General Motors upped the ante, with another 2.42 million vehicle recall, announced on Tuesday. 

The estimated second-quarter charges doubled, to $400 million, as the total recall count climbed to 13.6 million vehicles. 

Honestly, for those who are still shareholders, I have no idea how you haven't ripped your hair out. Kudos... I guess. 

Back in April, when most of the big news seemed to be out of the way and recall issues began to slow, only two big obstacles were left for the stock: victims' compensation and the Department of Justice. 

The Justice Department the two fined Toyota Motors (TM) $1.2 billion for its similar stunt in covering up a safety issue. So to think that the Department of Justice is going to give General Motors a slap on the hand and warning is foolish. 

And the victims' compensation fund is being headed by Kenneth Feinberg, the guy who orchestrated compensation funds for the Sept. 11th attack, the Boston Marathon bombing and the BP PLC  (BP) oil spill. 

And while we don't know what this charge will amount to, I just can't imagine it being cheap. I wouldn't be surprised to see a figure near, or north of, $2 billion between the fine from the Justice Department and the victims' compensation. 

Last week, I wrote that it's quite plausible that shares of GM could take out its year-to-date closing low of $31.93. Now, I can't imagine it not taking out that low. Near that price, the stock presented investors with a yield just above 3.75%, and perhaps that will act as support once more. 

But as concerns grow over future charges (it is only May, after all), and the amounts to be paid in the form of government fines and victims' compensation, that yield may not hold as support for as long as many people think. 

I want to like the stock, but a lot has to happen before I get interested. The constant flow of recalls, fines and additional charges is forcing me to keep my money away from GM's stock. Investor sentiment has held up relatively well, but alas, that tide seems to be turning sour as well.

Once again, I'm a buyer between $30 and $32. The stock closed Tuesday at $33.17, up 10 cents.

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

At the time of publication, Kenwell had no position in any stocks mentioned. 

-- Written by Bret Kenwell in Petoskey, Mich.

Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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