Berkshire, Greenlight Shed GM Stock as Recalls Warrant $35M Fine

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You know you’ve got recall problems when even the most savvy investors are starting to show signs of concern. General Motors, while it likely already knew it had quality control issues, is learning that the hard way, as Warren Buffett’s Berkshire Hathaway trimmed its holding in the automaker, and prominent hedge funds like David Einhorn’s Greenlight Capital did away with their positions entirely, according to respective regulatory filings uncovered by Bloomberg.

Berkshire Hathaway cut its position by about 25 percent, to 30 million shares. Greenlight, meanwhile, liquidated about 17 million shares worth about $697 million as of March 31. 

“While a number of factors have pushed GM stock downward recently, the controversy around the ignition switch recall appears to have had a chilling effect, and has underscored the idea that despite attractive valuation, GM might perpetually be a value trap,” said Brian Johnson, an analyst at Barclays who rated GM the equivalent of a buy, in a May 14 report, per Bloomberg.

General Motors’ total recall count now exceeds 11 million vehicles after a 2.7-million-unit effort launched earlier this week. The company is still up to its neck investigating the extent of the ignition switch issues that have been tied to 13 fatalities since around 2005, but it has meanwhile initiated more than 20 recall campaigns for other vehicles for a whole slew of reasons as a newfound effort to put its customers first and ensure they’re out of harm’s way.

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CEO Mary Barra, who started in January, had this mess dumped in her lap even before she could get her family photos arranged on her new desk. Overall, observers and the general public seem to be sympathetic to her situation, as none of the vehicles being recalled have been produced under her command. Instead, she has been lauded by many as taking the drastic steps necessary to gut the business and wipe the slate clean.

Other firms took the recent weakness as a means to load up on their positions in GM. David Tepper’s Appaloosa Management raised its holdings to about 7.9 million shares worth $271.4 million throughout the first three months of the year. Hayman Capital Management LP increased its position in General Motors by 54 percent to about 7.1 million shares worth $243.9 million, Bloomberg reports, citing regulatory filings.

The news comes as the National Highway Traffic Safety Administration slapped GM with a $35 million fine on Friday morning in order to put to rest the federal probe into the 10-plus year delay between the discovery of the problem and the necessary recall to fix the issue. Under the agreement, General Motors will have to change how it handles review of safety issues, though in many ways, it already has.