General Motors posts worst financial results since 2009

DETROIT -- General Motors on Thursday reported its worst financial results in more than four years as the costs of a series of recalls dragged down earnings.

First-quarter profit fell 86 per cent to $125 million as the Detroit automaker took a $1.3 billion charge for recalling about 7 million vehicles worldwide. GM also incurred $300 million in restructuring costs, mostly in Europe. And it took another $419 million charge due to a change in the way it values Venezuela's currency.

GM made 6 cents per share, down from 58 cents per share a year ago. The recall charge alone cut 48 cents off the company's first-quarter earnings.

But excluding one-time items, GM made 29 cents per share, far above Wall Street estimates of 3 cents per share. Shares rose 3.7 per cent to $35.66 in premarket trading.

The bottom line result was GM's worst since late 2009, when it posted a $4.4 billion loss for the five months after leaving bankruptcy protection. It was a rough start to what many expected would be a strong year for the Detroit automaker.

The U.S. government, which bailed out the company five years ago, sold its remaining stake in the company at the end of last year, freeing GM of the "Government Motors" nickname. In January, the company announced its first quarterly dividend in six years. And GM has rolled out multiple new models in recent months including high-profit pickup trucks and full-size SUVs.

But the recalls overshadowed the first quarter under the leadership of new CEO Mary Barra. GM is recalling 2.6 million older small cars because the ignition switches can slip from "run" to "accessory" or "off," shutting down the engine. That knocks out power steering and brakes and can cause drivers to lose control and crash. It also disables the air bags.

GM admitted knowing about the ignition switch problem at least a decade ago. Thirteen people have died in crashes linked to the problem, according to GM, although relatives of the victims say the death toll exceeds 30.

GM announced other recalls that pushed the total to near 7 million cars and trucks.

"Clearly the headline results are overshadowed by the recall charges," Chief Financial Officer Chuck Stevens said.

Without the recalls, GM would have had a strong quarter. The company's revenue grew 1.3 per cent from a year ago to $37.4 billion, in line with analysts' estimates.

GM's global sales for the quarter rose 2.3 per cent to 2.42 million cars and trucks. China sales grew 13 per cent, and sales in Europe rose less than 1 per cent. But sales fell 2 per cent in North America, GM's most profitable region, and they dropped 10 per cent in South America.

The company's North America division earned $600 million. Without the recall charge, it would have earned $1.9 billion, up from $1.4 billion a year ago. Sales in the region fell to 745,000 cars and trucks. Stevens said GM is getting $2,000 more for its vehicles on average in the U.S. than it did a year ago, and $5,000 more for its pickup trucks.

Stevens said the $1.3 billion charge covers the entire cost of parts for the recalls, as well as installation by dealers and loaner cars for owners of cars with faulty ignition switches. He said it's too early to tell if that will be the end of recall-related charges. GM faces multiple lawsuits from families of people killed in crashes, plus owners seeking compensation for lower value of their vehicles.

GM has hired Kenneth Feinberg -- who handled funds for the victims of the Sept. 11, 2001 terrorist attacks, the Boston Marathon bombing and the BP oil spill in the Gulf of Mexico -- to explore ways to compensate crash victims. Stevens said no decision has been made on establishing a fund.

GM said ignition parts supplier Delphi is producing parts on one assembly line, running multiple shifts seven days per week. Second and third lines should be up later in the summer, giving GM the ability to finish the small-car repairs by October.

In Europe, GM's pretax loss nearly doubled to $284 million. European results were impacted by the gradual exit of the Chevrolet brand in Europe, a process that will be complete at the end of next year. International operations -- which include Asia -- were down 40 per cent to $300 million. Stevens said results were affected by costs of launching new pickups and SUVs in the Middle East. In South America, GM lost $200 million, down from breakeven results a year ago.