GM profit sinks; CEO sees no recall hit to sales

DEE-ANN DURBIN TOM KRISHERAP Auto Writers Published:

DETROIT (AP) — 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 civil 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 were down 13 cents to $34.26 around midday.
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 first-quarter 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 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 pushing for an explanation on why GM dragged its feet. She said the answers would come from an ongoing internal investigation.
GM also announced other recalls that pushed the total to near 7 million cars and trucks.
Barra said the company has formed a leadership team to focus on recall issues. But, as before, she made no excuses for GM’s behavior in the ignition switch controversy.
“It doesn’t matter that the roots of the issue are more than a decade old,” she said.
She told analysts that dealers are taking advantage of increased showroom traffic due to the recalls. But spokesman Jim Cain said GM has asked dealers to use employee pricing not as a marketing tool, but to help the small-car owners trade for a new car. Employees generally pay about 4 percent below dealer invoice.
Without the recalls, GM would have had a strong quarter. The company’s revenue grew 1.3 percent from a year ago to $37.4 billion, in line with analysts’ estimates.
“Clearly the headline results are overshadowed by the recall charges,” Chief Financial Officer Chuck Stevens said.
GM’s global sales for the quarter rose 2.3 percent to 2.42 million cars and trucks. China sales grew 13 percent, and sales in Europe rose less than 1 percent. But sales fell 2 percent in North America, GM’s most profitable region, and they dropped 10 percent in South America.
The company’s North America division earned $600 million. Without the recall charge, it would have earned $1.9 billion, up from $1.4 billion a year ago. Sales in the region fell to 745,000 cars and trucks. Stevens said GM is getting $2,000 more for its vehicles on average in the U.S. than it did a year ago, and $5,000 more for pickup trucks.
Stevens said the $1.3 billion charge covers the entire cost of parts for the recalls, as well as installation by dealers and loaner vehicles for owners of cars with bad ignition switches. So far GM has paid for 36,000 loaners. He said it’s too early to tell if GM will take more recall-related charges. GM faces multiple lawsuits from families of people killed in crashes, plus owners who claim the recall has lowered the value of their vehicles.
GM has hired Kenneth Feinberg — who handled funds for victims of the Sept. 11, 2001 terrorist attacks and the BP oil spill in the Gulf of Mexico — to explore ways to compensate crash victims. Stevens said no decision has been made on establishing a fund.
GM said ignition parts supplier Delphi is producing parts on one assembly line, running multiple shifts seven days per week. Second and third lines should be up later in the summer, giving GM the ability to finish the small-car repairs by October.

 

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