GM’s share price down, Q2 profit drops on account of mass recalls

Detroit-based General Motors Co. posted second-quarter figures today, revealing profit suffered from recall costs, despite limited gains in revenue. The company announced on Wednesday it would recall some 700 000 more vehicles in the US.

GM’s revenue climbed to $39.6 billion from $39.1 billion a year ago, while net income was logged at $190 million, or $0.11 per share, about 80% down from the $1.2 billion a year ago. Excluding several one-time costs, shares earned $0.58 cents.

“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 GM CEO Mary Barra.

Expenditures included a $1.2 billion one-time charge, related to recall costs and a $400 million input to a victim-compensation fund, set up by GM to amend relatives of a faulty ignition-switch, related with at least 13 deaths.

The fund, which is to be independently run by Washington D.C. compensation expert Ken Feinberg, will begin operations on 1 August, and could require an additional $200 million later on.

“There is no cap on the program,” Stevens told reporters today at the company’s headquarters. “The objective of our compensation program, independently administrated by Ken Feinberg, is to get all of the people that were impacted by the ignition switch issues through the compensation program.”

The announcements come after just yesterday the company said it will recall 717 950 more vehicles in the US on a number of safety concerns, with Camaro, Equinox and Caprice, among other models, to be examined.

GM has recalled over 29 million vehicles in North America this year, costing a total of over $2.5 billion in direct charges in the first two quarters alone. In address to the recall issues, GM is reconfiguring how it would account for future recalls, shifting to doing it on an accrual basis, rather than reactively.

“We remain focused on keeping our customers at the center of all we do, and executing our plan to operate profitably in every region of the world,” GM CEO Mary Barra said.

General Motors Co. shares closed at $37.41 yesterday, down 0.93% for the day and 0.73% higher than a year ago. According to information published by the Financial Times, 15 analysts offering 12 month price targets for General Motors Company have a median target of $45.00, with a high estimate of $55.00 and a low estimate of $32.00. The median estimate represents a 20.29% increase from the last price of $37.41.