Wells Fargo reiterated an Underweight rating on General Motors (NYSE:GM) and maintained their 12-month price target of $29.00 on the stock following a report by the Wall Street Journal saying U.S. regulators are pushing to recall 52M ARC airbag inflators.
The National Highway Traffic Safety Administration (NHTSA), in a rarely held public forum, recommended the recall as a mechanism utilized in the inflator could rupture, propelling metal fragments towards the driver and passengers.
According to the WSJ report, GM accounts for 20M of the 52M ARC airbag inflators. GM has already recalled 1M cars.
GM & ARC claim there is insufficient evidence for a recall of the other models. The automakers claim that after 8 years of investigation, there is no evidence of a design or manufacturing defect. However, the NHTSA estimates one of every 370K inflators will rupture in the future, and said a recall of the entire population will address this risk.
Precedent airbag recalls at GM, Ford (NYSE:F) & Honda (NYSE:HMC) imply the recall costs could be $200 to $260 per vehicle. Implying a cost of $3.8-4.9 billion to recall the remaining 19M GM vehicles.
“We doubt ARC could afford to pay this cost, and it's unclear if some or all burden will fall on the Tier 1 airbag suppliers,” wrote analysts. “Therefore, it's likely the OEMs will need to fund most of this cost if NHTSA rules against them.”
NHTSA is currently holding a hearing on this matter and could formerly order a recall. NHTSA will accept comments until Dec 4th before making its final decision.
Shares of GM are down 0.43% in pre-market trading Friday morning.