GM profit sinks, federal regulators investigate recall

Photo

Photo by: GM

Ken Kelzer, General Motors executive chief engineer of global full-size and midsize cars, introduces the 2014 Chevrolet Malibu at its world debut last year in Detroit.

By DEE-Ann DURBIN

and TOM KRISHER

Associated Press

DETROIT

The cost of recalling nearly 7 million cars and trucks sank General Motors’ first-quarter profit, but the company’s CEO said the much-publicized recalls have yet to cut into sales.

GM on Thursday reported its worst financial results in more than four years, with profit falling 86 percent to $125 million. The biggest contributor was a $1.3 billion charge to cover a series of recalls announced since early February, most notably 2.6 million small cars with defective ignition switches.

The Detroit automaker is facing government investigations and lawsuits over the small-car recall. On a conference call, CEO Mary Barra called the company’s handling of the recall unacceptable but said that, so far, bad publicity has not had a “meaningful impact” on sales. She also said GM is offering employee discounts to owners of cars with the faulty ignition switches.

After opening with a 2 percent gain, GM shares were down 37 cents, or 1 percent, to $34.02 in afternoon trading.

Christian Mayes, an industrials analyst with Edward Jones, said the stock decline could be due to investor concerns about GM U.S. market share.

GM’s first-quarter share fell 0.6 points to 17.4 percent compared with a year ago. In a 16 million- vehicle market, the drop equals nearly 10,000 vehicles. Mayes said GM has $27 billion in cash and can handle the recall costs, “but I think the market share is a big deal. There’s very strong competition out there from all the other automakers.”

GM made 6 cents per share in the first quarter, down from 58 cents a year ago. The recall charge alone cut 48 cents off its earnings. But excluding one-time items, GM made 29 cents per share, far above Wall Street estimates of 3 cents per share. Revenue rose more than 1 percent. Still, it was a rough start to what many expected would be a strong year for the Detroit automaker.

The Securities and Exchange Commission likely is probing whether GM failed to disclose the switch problem to investors quickly enough, said Peter Henning, a former SEC lawyer who now is a law professor at Wayne State University in Detroit. The company, which has linked 13 deaths to the problem, has acknowledged that engineers knew about the problem more than a decade ago. Also, Barra has said she was told of the problem in December, yet it was not disclosed in the company’s annual report filed in February.

“That’s what the SEC is looking at,” said Henning. “If it should have been picked up, or it should have been included in the company’s financials, it could be a violation of securities law.”

A spokeswoman for the SEC would neither confirm nor deny that the agency is investigating. A message was left for a GM spokesman.