DETROIT – Recall expenses chopped $1.5 billion from General Motors’ bottom line in the second quarter, as it added up the costs of repairs for nearly 30 million cars and set aside funds to compensate victims of small-car crashes.
The automaker, which is in the midst of the largest spate of recalls in its history, posted a net profit of $190 million, or 11 cents per share. A year ago GM made $1.26 billion, or 75 cents per share. Without one-time items, GM would have made 58 cents per share, equaling Wall Street’s expectations, according to data provider FactSet.
So far this year GM has recalled almost 30 million vehicles, surpassing the company’s annual record.
GM took two pretax charges tied to the recalls: $400 million to compensate victims of ignition-switch related crashes and $874 million to account for recall expenses during the next 10 years. It also booked $1.2 billion in expenses for recalls announced during the quarter. The after-tax impact of those items was $1.5 billion.
So far, company sales haven’t been severely hurt by the recalls. In one way, they’ve benefited. Chief Financial Officer Chuck Stevens said GM has sold about 6,600 cars by offering employee pricing to owners of recalled small cars such as the Chevrolet Cobalt and Saturn Ion.
Revenue was up 1.3 percent for the quarter to $39.6 billion, about $300 million below analysts’ estimates.
Stevens said GM’s core business, led by North America and China, performed well during the quarter. Without recall expenses, he said, the company would have made $1.02 per share. The company reported a $1.4 billion pretax profit in North America, led by higher prices for pickup trucks and new large SUVs. Still, that was down almost 30 percent from a year ago. But excluding recall costs, GM would have made $2.4 billion in North America, the highest number since January 2010, Stevens said.
Pretax profits were up 36 percent at GM’s International Operations including China, to $315 million. But South America reported an $81 million loss, and GM’s European loss widened by almost $200 million to $305 million on uncertainty in Russia. The company also had $200 million in restructuring costs associated with the pending closure of a factory in Bochum, Germany.
Stevens said the situation with Ukraine has forced GM to cut production by 20 to 25 percent at its plant in St. Petersburg. He expects more of the same in the second half.