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Recall costs slam brakes on GM profit

The General Motors headquarters in the Renaissance Center is pictured on January 14, 2014 in Detroit, Michigan
The General Motors headquarters in the Renaissance Center is pictured on January 14, 2014 in Detroit, Michigan

General Motors Thursday reported slumping first-quarter profits, dragged down by hefty recall charges that eclipsed a strong core operating performance.

The largest US automaker's first-quarter net income sank 85 percent from a year ago to $125 million as the company took a $1.3 billion charge for the recall of seven million vehicles worldwide.

The Detroit, Michigan-based company also took a $300 million charge for restructuring costs, mostly in Europe, and incurred costs related to the exchange rate it uses for Venezuela's currency.

Earnings per share were six cents, down from 58 cents a year ago but beating Wall Street estimates of four cents.

Revenue rose 1.3 percent to $37.4 billion, missing expectations of $38.43 billion.

General Motors CEO Mary Barra testifies before the House Energy and Commerce Committee for a hearing on the GM ignition switch recall on Capitol Hill in Washington, DC, April 1, 2014
General Motors CEO Mary Barra testifies before the House Energy and Commerce Committee for a hearing on the GM ignition switch recall on Capitol Hill in Washington, DC, April 1, 2014

But net cash from automotive operating activities increased fourfold from a year ago to $2.0 billion.

And excluding the recall-related expenses, GM's operating income in North America improved compared with the 2013 first quarter.

"The performance of our core operations was very strong this quarter, reflecting the positive response of customers to the new vehicles we are bringing to market," said GM chief executive Mary Barra in a statement.

Shares in GM closed 0.6 percent lower at $34.17 on the New York Stock Exchange.

The company also made progress in paring losses in its Europe segment, when stripping out restructuring costs. Operating income was lower in the international segment and fell into negative territory in South America.

- Growth in China -

A new-generation Chevrolet Cruze makes its debut at the 'Chevrolet Gala Night' for General Motors (GM), ahead of the Beijing International Automotive Exhibition on April 19, 2014
A new-generation Chevrolet Cruze makes its debut at the "Chevrolet Gala Night" for General Motors (GM), ahead of the Beijing International Automotive Exhibition on April 19, 2014

GM delivered 2.4 million vehicles around the world in the first quarter, up two percent from a year ago. Its global market share in North America held steady for the third consecutive quarter at 16.5 percent.

Its share in China, the world's largest auto market, rose to 15.2 percent from 13.9 percent in the fourth quarter last year.

Improvements in revenue and cash flow and the underlying business performance in the quarter kept GM on track with its business strategy for the full year, said chief financial officer Chuck Stevens.

"Executing flawless launches and using our strength in the US and China to restructure key global operations will continue to be our focus this year," Stevens said.

The automaker predicted that North America and international operations would perform as planned, while Europe and China would outperform.

Of the 2014 challenges it faces, GM cited the recall impact on the US market, currency headwinds in Russia and South America, and Venezuela's political and market volatility.

The $1.3 billion first-quarter charge for recalls included a $700 million expense for the 2.6 million cars recalled worldwide for faulty ignition switches and ignition cylinders.

The other recalls, totaling 4.5 million vehicles, cost $600 million.

GM faces a slew of investigations and lawsuits in the United States over its delayed recall of vehicles for an ignition switch problem that has been linked to 13 deaths and other injuries.

Mary Ruddy (2nd L), whose daughter Kelly died in the crash of a 2005 Chevy Cobalt, hugs Rosie Cortinas, whose son Amador also died in the crash of a 2005 Chevy Cobalt, during a press conference on Capitol Hill in Washington, April 1, 2014
Mary Ruddy (2nd L), whose daughter Kelly died in the crash of a 2005 Chevy Cobalt, hugs Rosie Cortinas, whose son Amador also died in the crash of a 2005 Chevy Cobalt, during a press conference on Capitol Hill in Washington, April 1, 2014

The ignition problem was detected at the pre-production stage as early as 2001, but the company waited until February this year to begin recalling the affected vehicles.

"Our focus remains on creating the world's best vehicles with the highest levels of safety, quality and customer service, while aggressively addressing our business opportunities and challenges globally," said Barra, who took the company's top job in January.

Last week Barra announced the creation of a product-integrity team aimed at ensuring future technical problems are addressed and resolved quickly.

GM also appointed former US attorney Anton Valukas to investigate why it took so long for the company to recall the vehicles.

On Monday, GM, which emerged from US government-backed bankruptcy reorganization in July 2009, asked a US bankruptcy court to bar suits not related to the 13 deaths and other injuries filed over its faulty ignition system.

GM argued that under the terms of the bankruptcy agreement, it should be shielded from economic damages due to product defects dating back to before the bankruptcy reorganization.

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