General Motors Co reported a much lower second-quarter profit yesterday due to numerous recalls and the expected cost of at least $400mn for a compensation fund for those killed or injured by a defective ignition switch linked to at least 13 deaths.
GM also reiterated that it expected a moderately improved operating profit this year and that its future recall costs would be slightly higher than historic rates.
“We’re on or ahead of the plan we shared in January,” Chief Financial Officer Chuck Stevens told reporters. “Our expectation is that the second half of the year will be better than the first half.”
Morgan Stanley analyst Adam Jonas said strong vehicle pricing in North America “saves the quarter.”
Net income in the quarter fell to $190mn, or 11 cents a share, from $1.2bn, or 75 cents a share, a year earlier.
Excluding one-time items, GM earned 58 cents a share, just below the 59 cents analysts polled by Thomson Reuters I/B/E/S had expected.
The company’s shares fell 2.9% to $36.34 in morning trading.
GM previously took charges as recalls occurred, but now it will account for potential future liabilities as the cars are sold and adjust those costs on a quarterly basis, as it does for warranty expenses.
For the victim’s compensation fund, Stevens said the $400mn figure was based on actuarial data and did not say whether the company expected the number of deaths linked to the defective part to rise.
