GM profits plunge on recall issues

<p>General Motors estimates $400 million are needed to pay for victims compensation program.</p>

Carmaker General Motors' (GM) net profit in the second quarter was slashed by the cost of recall-related repairs.

Through the first half of 2014, GM recalled about 29 million vehicles for ignition switch defects and other issues at a cost of $2.5 billion (£1.47 billion).

As a result, second-quarter net profits fell 85 per cent from a year ago to $190 million, the company said.

It announced it would set aside a further $400 million to compensate victims of crashes linked to the faulty switches in its cars, and that it could rise to as much as $600 million, depending on how many claims are paid.

The group said it was changing the way it would estimate future recall expenses, a move which involves putting aside a certain amount of money from the sale price of each vehicle.

Despite all the recall problems, GM’s core operating performance during the quarter remained healthy, with net revenue rising $500 million from a year ago to $39.6 billion. 

“Our underlying business performance in the first half of the year was strong as we grew our revenue on improved pricing and solid new vehicle launches,” said chief executive Mary Barra, quoted by CBS.

In North America, GM saw its fourth straight quarter of year-over-year margin growth (excluding recalls), while it lost $300 million in Europe and $100 million in South America, but operating profit rose to $300 million in the rest of its international operations.

The company said it expects to be profitable in Europe by about 2015.

GM shares were down two per cent today (July 24th) to $37.41, in pre-market trade in New York.

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