General Motors Nets Only $200 Million Profit After $1.2 Billion Cost of Recalls

GM's new big SUVs, such as this 2015 Cadillac Escalade, are commanding high prices, helping earnings. (Photo: Cadillac)
GM’s new big SUVs, such as this 2015 Cadillac Escalade, are commanding high prices, helping earnings. (Photo: Cadillac)

General Motors reported net income of $200 million in the second quarter after a $1.2 billion charge for the cost of recalls.

That’s well off from a net of $1.2 billion a year earlier, when it had just $100 million in recall expenses.

Revenue in the quarter was $39.6 billion, up slightly from $39.1 billion a year earlier.

GM has issued 60 recalls this year through July 23, involving 26.41 million U.S. vehicles.

GM also said it expects to spend $400 million to compensate victims of its defective ignition switches — the first time GM has forecast what that will cost. The automaker warned its investors that the victim-compensation fund has no cap and could rise to $600 million.

Lance Cooper, lawyer for some victims, said the numbers seem too small, and could serve as a signal to Kenneth Feinberg, who is administering the compensation fund, effectively capping what’s supposed to be an uncapped fund.

GM and Feinberg both have said vigorously and often that Feinberg has sole authority to make awards from the fund to anyone he believes is deserving, in any amount. He is using a formula derived from the Bureau of Labor Statistics for valuing a life in the event of a mishap, effectively capping most individual awards.

The fund is for people who were hurt or lost loved ones in crashes of any of the 2.6 million 2003-2011 GM small cars the automaker recalled worldwide in February and March. Defective ignition switches can disable air bags. GM links 13 deaths to cars in that recall. That began the avalanche of recalls, as GM cleaned house to avoid additional fines by the federal government.

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SOURCE: James R. Healey 
USA Today

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