Given General Motors' steady stream of recalls this year (including a single day with around 8.4 million vehicles needing repair), it's not a huge surprise that the cost to deal with all of the problems will be high. However, few analysts expected the tab to be this steep. In the General's just-announced second-quarter financial filing, it revealed that net income for the quarter was just $200 million, compared to 1.2 billion in Q2 2013 – a drop of over 80 percent. To put this in proper perspective, though, that figure is still up from the $100-million income booked from the first quarter of 2014.

The cause of the sharp descent was not only the recalls themselves, but other costs related to them, as well. According to the report, GM paid out $1.2 billion in recall-related repairs during the quarter. The company had to set aside $400 million for ignition-switch compensation, an amount it admits is an estimate that may need to be raised by an additional $200 million in the future. To prepare for possible future campaigns, the automaker also took a charge of around $900 million to be ready to pay for them.

Earnings before interest and tax also fell to $1.4 billion, compared to $2.3 billion in the same quarter of 2013. However, net revenue was up slightly to $39.6 billion, compared to $39.1 billion in the previous comparable quarter, and revenue was also up through the first six months of the year.

CEO Mary Barra put a positive spin on the tepid results, saying, "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," she said in the company's announcement. Scroll down to read the entire release, including a table comparing Q2 2014 to 2013.
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GM Reports Second Quarter Net Income of $0.2 Billion
2014-07-24

EBIT-adjusted of $1.4 billion, after $1.2 billion in recall-related costs and $0.2 billion in restructuring costs

Company records strong core operating performance in the second quarter

Special charge of $0.4 billion for GM ignition switch compensation program


DETROIT – General Motors Co. (NYSE: GM) today announced second quarter net income attributable to common stockholders of $0.2 billion, or $0.11 per diluted share. Strong core operating performance during the quarter was offset by a pre-tax net loss from special items of $1.3 billion, or $(0.47) per diluted share, and costs of $1.2 billion pre-tax primarily for recall-related repairs, or $(0.44) per diluted share.

"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 GM CEO Mary Barra. "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."

In the second quarter of 2013, GM's net income attributable to common stockholders was $1.2 billion, or $0.75 per diluted share, which included a net loss from special items that reduced net income by $0.2 billion, or $(0.09) per diluted share.

Earnings before interest and tax (EBIT) adjusted was $1.4 billion and included the impact of $1.2 billion in recall-related costs and $0.2 billion in restructuring costs. This compares to the second quarter of 2013, when the company recorded EBIT-adjusted of $2.3 billion, which included a charge of $0.2 billion for recalls and $0.1 billion in restructuring costs.

Net revenue in the second quarter of 2014 was $39.6 billion, compared to $39.1 billion in the second quarter of 2013. In the first six months of 2014, revenue rose to $77 billion, up from $76 billion in the same period a year ago.

GM Results Overview (in billions except for per share amounts)

Q2 2014

Q2 2013

Revenue

$39.6

$39.1

Net income attributable to common stockholders

$0.2

$1.2

Earnings per share (EPS) diluted

$0.11

$0.75

Impact of special items on EPS diluted

$(0.47)

$(0.09)

EBIT-adjusted

$1.4

$2.3

Automotive net cash flow from operating activities

$3.6

$4.5

Adjusted automotive free cash flow

$1.9

$2.6



Segment Results

GM North America reported EBIT-adjusted of $1.4 billion which included the impact of $1.0 billion in recall-related costs in the quarter. This compared with EBIT-adjusted of $2.0 billion in the second quarter of 2013, which included the impact of $0.1 billion in recall-related costs in the quarter.

GM Europe reported an EBIT-adjusted of $(0.3) billion, which includes $0.2 billion for restructuring costs. This compares with $(0.1) billion of EBIT-adjusted in the second quarter of 2013.

GM International Operations reported EBIT-adjusted of $0.3 billion, compared to $0.2 billion in the second quarter of 2013.

GM South America reported EBIT-adjusted of $(0.1) billion, compared with EBIT-adjusted of $0.1 billion in the second quarter of 2013.

GM Financial earnings before tax was $0.3 billion for the quarter, compared to $0.3 billion in the second quarter of 2013.

Special Items

A special charge of $0.4 billion was taken for the GM ignition switch compensation program. There is no cap on this program, but this charge is the company's best estimate of the amounts that may be paid to claimants. Due to the unique nature of the program, this estimate contains significant uncertainty and it is possible the total cost could increase by approximately $0.2 billion.

As previously disclosed, going forward the company expects recall expense to normalize to a slightly higher rate than it experienced prior to this year, but not materially. The company is changing how it estimates future recall expense and will now accrue at the time of vehicle sale an amount that represents management's best estimate of future recall costs in North America. As a consequence of this change, GM is taking a $0.9 billion non-cash pre-tax special charge in the second quarter for the estimated costs of future possible recalls for up to the next 10 years on 30 million GM vehicles on the road today.

Cash Flow and Liquidity

For the quarter, automotive cash flow from operating activities was $3.6 billion and automotive free cash flow adjusted was $1.9 billion. GM ended the quarter with very strong total automotive liquidity of $38.8 billion. Automotive cash and marketable securities was $28.4 billion compared with $27.0 billion for the first quarter of 2014.

"With successful new vehicle launches, we continue to generate strong results in the U.S. and China and remain on track to be profitable in Europe by mid-decade," said Chuck Stevens, GM executive vice president and chief financial officer. "We are confident we are currently on or ahead of plan to deliver the results we promised earlier this year, excluding the effects of recalls."

General Motors Co. (NYSE:GM, TSX: GMM) and its partners produce vehicles in 30 countries, and the company has leadership positions in the world's largest and fastest-growing automotive markets. GM, its subsidiaries and joint venture entities sell vehicles under the Chevrolet, Cadillac, Baojun, Buick, GMC, Holden, Jiefang, Opel, Vauxhall and Wuling brands. More information on the company and its subsidiaries, including OnStar, a global leader in vehicle safety, security and information services, can be found at http://www.gm.com.

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    • 1 Second Ago
  • 12 Comments
      Tariff The Imports
      • 5 Months Ago
      Ah GM quality. Actually, make that lack of quality.
      carguy1701
      • 5 Months Ago
      Still in line with analyst expectations.
      That Guy
      • 5 Months Ago
      All this because 13 people died.....most of which were breaking multiple laws at the time of the crash including speeding, no seatbelt, and driving while high or intoxicated. Our society is so screwed.
        luigi.tony
        • 5 Months Ago
        @That Guy
        Keep trying to convince people of that. What department at GM is paying you to spread that drivel? From Automotive News yesterday. GM - 505 Death and Injury claims Toyota - 377 Ford - 162 Honda - 6 http://www.autonews.com/article/20140723/OEM11/140729944/gm-lists-more-cobalt-ion-fatalities-in-quarterly-crash-data
          Larry Litmanen
          • 5 Months Ago
          @luigi.tony
          He keeps copying and pasting exactly the same line over and over.
      alexp
      • 5 Months Ago
      G.M. has been going downhill for the last 30 yrs..FOR THE SLOW:BOOKKEEPING MGT....USED TO BE # 1..BOOKKEEPERS...
      Jmaister
      • 5 Months Ago
      John Oliver and his writers are dead on. Mary Barra's words are anything but human.
      Brodz
      • 5 Months Ago
      Suck.