The NHTSA Launches Probe into General Motors (GM) Engine Failures

The National Highway Traffic Safety Administration (NHTSA) has launched a preliminary investigation into engine failures affecting nearly 878,000 General Motors (GM) SUVs and trucks. The probe focuses on vehicles equipped with the L87 engine, a 6.2L V8 engine that has been in use for decades but was recently upgraded in 2019. The NHTSA has received 39 complaints and several field reports alleging engine failure without warning.

bearing failure that may result in either engine seizure or breaching of the engine block by the connecting rod,

The engine failure is attributed to a bearing failure that can cause the engine to seize or the connecting rod to breach the engine block. This can result in a loss of power, increasing the risk of a crash. The affected vehicles include certain models of Chevrolet Silverado, GMC Sierra, Chevrolet Tahoe, Chevrolet Suburban, GMC Yukon, and Cadillac Escalade. A GM spokesperson stated that the company is cooperating with the NHTSA’s evaluation and prioritizes customer safety and satisfaction.

Nevertheless, if the investigation does lead to a recall, GM may face significant costs to repair or replace the engines. The company has already addressed similar issues in the past, which includes a “customer satisfaction program” last April that replaced certain L87 engines. GM’s warranty costs will be disclosed in its upcoming earnings report on January 28. The potential recall could impact GM’s financials, but the company’s sales data that was released earlier this month showed that the affected SUVs and trucks saw strong results.

What Is GM’s Target Price?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on GM stock based on 36 Buys, five Holds, and two Sells assigned in the past three months, as indicated by the graphic below. After a 49% rally in its share price over the past year, the average GM price target of $58.60 per share implies 17% upside potential.

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