GM profit skids on recall costs

AFP, Thursday 24 Jul 2014

General Motors on Thursday posted a sharp drop in second-quarter profit as the automaker took heavy charges for massive recalls and a compensation fund for victims of faulty ignition switches.

GM net profit dived 85 percent from a year ago to $190 million, well below analyst expectations.

Adjusted earnings per share of 58 cents came in a penny below estimates.

The largest US automaker took a pre-tax net loss from special items of $1.3 billion, and a $1.2 billion charge mainly for recall-related repairs of vehicles.

It took a special charge of $400 million for the ignition-switch compensation program.

"There is no cap on this program, but this charge is the company's best estimate of the amounts that may be paid to claimants," GM said in a statement.

Due to the unlimited cap, it estimated the total cost of the program could increase by $200 million.

The Detroit-based company said it was estimating future recall costs in North America and, as a result, it was taking a $900 million charge in the second quarter for possible recalls for up to the next 10 years on 30 million GM vehicles currently on the road.

GM has been under scrutiny since publicly acknowledging 13 deaths in 54 accidents linked to the ignition-switch defect in several models no longer being manufactured. The company has recalled 2.6 million cars since February for the faulty switch.

The company is under federal and congressional investigations, and multiple lawsuits, for its delayed recall of the cars.

GM has recalled roughly 30 million vehicles so far in 2014.

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