DETROIT – The cost of recalling nearly 7 million cars and trucks sank General Motors’ first-quarter profit, but the company’s CEO said the much-publicized recalls have yet to cut into sales.
GM on Thursday reported its worst financial results in more than four years, with profit falling 86 percent to $125 million. The biggest contributor was a $1.3 billion charge to cover a series of recalls announced since early February, most notably 2.6 million small cars with defective ignition switches.
The Detroit automaker is facing government investigations and lawsuits over the small-car recall. On a conference call, CEO Mary Barra called the company’s handling of the recall unacceptable but said that, so far, bad publicity has not had a “meaningful impact” on sales. She also said GM is offering employee discounts to owners of cars with the faulty ignition switches.
After opening with a 2 percent gain, GM shares closed down 22 cents, or 0.64 percent, at $34.17 Thursday.
Christian Mayes, an industrials analyst with Edward Jones, said the stock decline could be due to investor concerns about GM’s U.S. market share.
GM’s first-quarter share fell 0.6 points to 17.4 percent compared with a year ago. In a 16 million-vehicle market, the drop equals nearly 10,000 vehicles. Mayes said GM has $27 billion in cash and can handle the recall costs, “but I think the market share is a big deal. There’s very strong competition out there from all the other automakers.”
GM made 6 cents per share in the first quarter, down from 58 cents a year ago. The recall charge alone cut 48 cents off its earnings. But excluding one-time items, GM made 29 cents per share, far above Wall Street estimates of 3 cents per share. Revenue rose more than 1 percent.
Still, it was a rough start to what many expected would be a strong year for the Detroit automaker.
The U.S. government sold its remaining stake in GM at the end of last year, freeing the company of the “Government Motors” nickname. In January, GM announced its first quarterly dividend in six years. And it has rolled out multiple new models in recent months, including high-profit pickup trucks and full-size SUVs.
But the recalls have overshadowed Barra’s first months as CEO. GM has linked the ignition switch problem to 13 deaths and has acknowledged knowing about it for at least a decade. Barra was grilled earlier this month by two congressional panels seeking an explanation on why GM dragged its feet. She said answers would come from an internal investigation. GM announced other recalls that pushed the total to near 7 million cars and trucks.
Without the recalls, GM would have had a strong quarter. Revenue grew 1.3 percent from a year ago to $37.4 billion, in line with analysts’ estimates.
The company’s North America division earned $600 million. Without the recall charge, it would have earned $1.9 billion. CFO Chuck Stevens said GM is getting $2,000 more for its vehicles on average in the U.S. than it did a year ago.