GM Scrapes Out Second-Quarter Profit Despite Recall Expenses

Jul 24, 2014 02:38 PM EDT | Jordan Ecarma

General Motors managed to post a $190 million profit in the second quarter of the year, down from $1.2 billion for the same period in 2013.

The automaker is paying for billions in expenses related to recalling millions of cars in North America this year as well as a fund for crash victims and their families, the Los Angeles Times reported.

GM has booked $2.5 billion in charges and expenses as pre-tax items, slashing company net income by $1.5 billion for the second quarter. GM's profits would have stood at $1.7 billion without the charge.

Despite dozens of recalls this year, GM continues to sell cars.

"Sales haven't slowed as much as many people expected, thanks in part to a clear recall strategy from GM as it relates to public perception, as well as the introduction of solid, new product as of late," said Akshay Anand, an analyst for Kelley Blue Book, as quoted by the L.A. Times.

The Detroit, Mich.-based carmaker has set aside $400 million for a compensation fund for those injured or killed in GM vehicles, a figure that could rise to $600 million.

"This is an unfortunate situation that has and will continue to cost GM a considerable amount of money into the future. Setting aside a large amount of money to cover victims' payments is the responsible thing to do. GM is doing what it needs to do to correct wrongdoings," said Kaitlin Wowak, a University of Notre Dame management professor.

The $400 million will go toward those who were injured or the families of those killed in connection with a 2.6 million-vehicle small car recall earlier this year. The recall involving Chevrolet Cobalts, Saturn Ions and other models has been connected with at least 54 crashes and 13 deaths.

GM has tapped high-profile attorney Kenneth Feinberg to handle the fund and has said there will be no limit on victim compensation.

"There is no cap on the program," said Chief Financial Officer Chuck Stevens, as quoted by Bloomberg News. "The objective of our compensation program, independently administered by Ken Feinberg, is to get all of the people that were impacted by the ignition switch issues through the compensation program."

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