General Motors (GM) today reported its worst financial results in more than four years as the costs of a series of recalls dragged down earnings.
First-quarter profit fell 86 per cent to 125 million USD as the Detroit automaker took a 1.3 billion USD charge for recalling about 7 million vehicles worldwide. GM also incurred 300 million USD in restructuring costs, mostly in Europe. And it took another 419 million USD charge due to a change in the way it values Venezuela's currency.
GM made 6 cents per share, down from 58 cents per share a year ago. The recall charge alone cut 48 cents off the company's first-quarter earnings.
But excluding one-time items, GM made 29 cents per share, far above Wall Street estimates of 3 cents per share. Shares rose 3.7 percent to $35.66 in premarket trading.
GM's global sales for the quarter rose 2.3 per cent to 2.42 million cars and trucks. China sales grew 13 per cent, and sales in Europe rose less than 1 per cent. But sales fell 2 per cent in North America, GM's most profitable region, and they dropped 10 per cent in South America.
In Europe, GM's pretax loss nearly doubled to 284 million USD. European results were impacted by the gradual exit of the Chevrolet brand in Europe, a process that will be complete at the end of next year. International operations which include Asia were down 40 per cent to 300 million USD. Stevens said results were affected by costs of launching new pickups and SUVs in the Middle East. In South America, GM lost 200 million USD, down from break-even results a year ago.
The bottom line result was GM's worst since late 2009, when it posted a 4.4 billion USD loss for the five months after leaving bankruptcy protection. It was a rough start to what many expected would be a strong year for the Detroit automaker.
The US government, which bailed out the company five years ago, sold its remaining stake in the company at the end of last year, freeing GM of the "Government Motors" nickname. In January, the company announced its first quarterly dividend in six years. And GM has rolled out multiple new models in recent months including high-profit pickup trucks and full-size SUVs.
But the recalls overshadowed the first quarter under the leadership of new CEO Mary Barra. GM is recalling 2.6 million older small cars because the ignition switches can slip from "run" to "accessory" or "off," shutting down the engine. That knocks out power steering and brakes and can cause drivers to lose control and crash. It also disables the air bags.
GM admitted knowing about the ignition switch problem at least a decade ago. Thirteen people have died in crashes linked to the problem, according to GM, although relatives of the victims say the death toll exceeds 30.
"Clearly the headline results are overshadowed by the recall charges," Chief Financial Officer Chuck Stevens said.
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.
