GM’s massive, ongoing recall is destroying profits

General Motors’ net profit in the second quarter was all but wiped out by the cost of recall-related repairs as the automaker sought to put the financial impact of a devastating safety issue behind it.

General Motors said Thursday that its second-quarter earnings fell 85 percent, as recall costs chopped $1.5 billion from the bottom line. The automaker posted a net profit of $190 million, or 11 cents per share, including restructuring and recall-related expenses.

GM earned $200 million on $39.6 million in revenue, down from $1.2 billion net profit a year ago. Earnings before interest and taxes was $1.4 billion, down from $2.3 billion a year ago, and includes the impact of $1.2 billion in recall-related costs for the quarter. 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.

“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,” GM CEO Mary Barra said in a statement. “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.”

The carmaker said it would set aside a further $400 million to compensate victims of crashes tied to the faulty switches in Chevrolet Cobalts, Saturn Ions and other small cars, but that it could rise to as much as $600 million, depending on how many claims are paid by independent administrator Kenneth Feinberg. GM also said it is changing how it estimates future recall expenses, and as a result, took a $900 million non-cash charge in the quarter to cover potential recalls over the next 10 years on 30 millions cars and trucks on the road today.

GM says 13 deaths and more than 50 accidents stemming from defective ignition switches in Chevrolet Cobalts and other vehicles. Attorney and compensation expert Kenneth Feinberg announced in June that GM would offer at least $1 million in compensation for people killed or injured in accidents caused by faulty ignition switches. Read more about the story here.