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GM profits down 80 percent, due to recall costs

GM squeezes out a profit despite $1.5 billion in recall costs, while its closest rival, Ford, posted a profit as well.

By Ananth Baliga
GM profits down 80 percent, due to recall costs
General Motors GM Company CEO Mary Barra has said that the company has corrected its recall-related issues and expects the company to bounce back from its recent woes. UPI/John Angelillo | License Photo

DETROIT, July 24 (UPI) -- General Motors' profits were down 80 percent on account of expenses related to vehicle recalls and money set aside for compensation to victims' families.

Earnings for the last quarter were $278 million, as compared to $1.41 billion a year earlier. Excluding the large one-time costs, the company reported an earning of 58 cents a share, matching analysts' expectations, according to FactSet.

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GM has set aside $400 million as part of a compensation plan related to its ignition switch-related recall. The company hired compensation expert Ken Feinberg to determine the size of the plan, and said that it may require an additional $200 million to fund the plan.

"There is no cap on the program," said Chief Financial Officer Chuck Stevens. "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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The auto maker has increased the price of vehicles it sells in the U.S. and Europe, and has increased sales in China, giving GM the required cushion to offset recall-related costs.

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GM reported a profit of $190 million, down from $1.2 billion from the same quarter a year earlier, whereas revenues rose 1 percent to $39.6 billion.

While GM has been in the news for its recalls, auto sales in the U.S. have been strong, rising 2.5 percent through June. But GM's sales fell in South America by 18 percent as deliveries to Brazil declined by 13 percent.

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"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 Mary Barra, GM's chief executive.

"I believed we have now addressed the major outstanding issues," she said.

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