GM’s $1.3 billion recall cost wipes out profit
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.
The company recalled a total of 7 million vehicles during the quarter, most prominently 2.6 million with a faulty ignition switch tied to at least 13 deaths. GM said it would spend about $700 million to fix that ignition switch, and another $600 million on other recalls.
While most of those repairs did not start until this month, the company booked the full cost of the recalls in the first quarter.
Still, the nation’s largest automaker will be able to afford the massive recall cost. The earnings, excluding the special charges, were better than expected by Wall Street analysts.
Shares of GM are down nearly 16% so far this year, but they rose nearly 3% in premarket trading after the earnings report.
Sales of GM models, even in the United States, have not been hurt by the recall crisis, as revenue increased 1% to $37.4 billion, and the number of vehicles sold rose 2% to 2.4 million. It reported record sales in China, the largest market for car sales where GM sells more vehicles than it does in the United States.
The company ended the quarter with $27 billion in cash and marketable securities on its balance sheet, up 11% from a year ago. It was able to pay its first dividend in five years in the period.
The company had already warned of the charge to deal with a flood of recalls in the period. 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.