General Motors reported a lower second-quarter profit on Thursday due to numerous recalls and the expected $400 million cost for a fund to compensate those killed or injured by a defective ignition switch.
Net income in the quarter fell to $190 million, or 11 cents a share, compared with $1.2 billion, or 75 cents a share, a year earlier.
One-time items in the quarter totaled 47 cents a share, including an $874 million charge for a change in how the company will account for recalls, and the charge for the establishment of the victims’ compensation fund, which GM said could rise by about $200 million.
The $400 million compensation fund charge is the automaker’s best estimate on the cost, CFO Chuck Stevens told CNBC. “But there is no cap on this program. Ultimately the cost of the program will be independently determined by Ken Feinberg and Ken Feinberg alone.” Feinberg is the lawyer hired by GM to administer the compensation fund.
Not counted as one-time items were previously disclosed costs of $1.2 billion for GM recalls, which have covered almost 29 million vehicles this year. GM also has $200 million in restructuring costs.
Excluding one-time items, GM earned 58 cents a share, just below the 59cents analysts polled by Thomson Reuters had expected.
“The key message: We have strong core operating performance, especially in our key markets, North America and China,” Stevens told CNBC’s “Squawk Box” shortly after the automaker released its results. “Excluding the impact of recalls, North America earnings were up 20 percent year over year,” he added.
On Wednesday, GM announced yet another recall—717,950 vehicles in the U.S. because of safety issues.
Earlier this week, GM said it had ordered Cadillac dealers to stop selling some versions of the CTS model-range because it did not yet have a fix for the ignition key issue behind earlier recalls.
Rival Ford Motor reported quarterly profit earlier Thursday, postingoperating earnings for the second quarter that beat Wall Street expectations, as better-than-expected profit in North America and Europe counteredweaker results in Asia Pacific and South America.