General Motors Profits Nearly Wiped Out By Recall Charges

General Motors Company (NYSE:GM) continues to reel from a spate of recalls, with the most recent being announced yesterday. The automaker’s earnings report this morning was less than spectacular as the charges associated with those recalls continue to add up, taking a toll on GM’s results.

General Motors Profits Nearly Wiped Out By Recall Charges

GM non-GAAP earnings of 58 cents per share, which was in line with consensus estimates, on $39.6 billion in revenue, compared to estimates of $40.63 billion. Reported net income was 11 cents per share.

General Motors sees falling profits

Second quarter profits plummeted 83% in the June quarter as the recalls continued to roll in. General Motors continued to build the compensation fund for victims and families of victims in connection with the bad ignition switch that has claimed at least 13 lives. GM said it is adding $400 million to the compensation fund, although that number could rise as high as $600 million. In connection with the ongoing recall expenses, GM took a $900 million non-cash charge during the June quarter to cover any possibly recalls over the next decade.

Net income slumped from $1.2 billion in the same quarter a year ago to $200 million this year. EBIT was reported to be $1.4 billion, compared to $2.3 billion in the same quarter a year ago. That number includes a total of $1.2 billion in costs related to the onslaught of recalls. In the first half of this year alone, General Motors has recalled approximately 29 million vehicles in connection with the faulty ignition switch and a number of other problems. Those recalls have cost the automaker $2.5 billion so far.

General Motors remains strong

In spite of the recall charges, General Motors saw its net revenue climb $500 million year over year. In North America, consumers seem unperturbed by all the recalls, as the automaker saw its fourth consecutive quarter of growth in margins, not counting all those recalls. Average transaction values climbed $3,000 thanks to the automaker’s better vehicle lineup. In Europe and South America, however, General Motors saw its EBIT decline $300 million and $100 million, respectively. In other international markets, however, including China, operating profits increased to $300 million.