Ignition Switch Recall Wipes Out GM Profits

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NEW YORK (CNNMoney, April 24, 2014) — General Motors’ recall crisis virtually wiped out its profit for the first three months of the year, as it said Thursday that the cost of repairing millions of vehicles would come to $1.3 billion.

The cost of the recall and some other accounting charges left the company with a profit of only $108 million in the quarter.

Still, the nation’s largest automaker will be able to afford the massive recall cost. The earnings, excluding the special charges, were a bit better than expected by Wall Street analysts.

Sales of GM models have not been hurt by the recall crisis, even in the United States, as revenue increased 1% to $37.4 billion, and the number of vehicles sold rose 2% 2.4 million. The company ended up with $19.4 billion in cash on its balance sheet as of March 31.

The company had already warned of the charge to deal with a flood of recalls in the period, most prominently a faulty ignition switch tied to at least 13 deaths. The company had originally estimated that it would need a $300 million charge to deal with the cost of a recalls. But as the extent of the problem grew larger and larger in the period, it raised its estimated cost to $1.3 billion.

Shares of GM are down nearly 16% so far this year. The stock was up 2% in pre-market trading after the earnings report.

 

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