GM Recall Reduced Company's Net Income In First Quarter By 86 Percent
|   Wednesday, May 14, 2014
General Motors received a severe blow by the recall initiated earlier this year, the United States manufacturer having to repair more than 2.6 million units of various problems, bringing them a reduction of 86 percent of its net income in the first quarter.

Compared with the first quarter of 2013, General Motors lost 125 million dollars in net income due to the recall, causing the worst financial result the American company had after it left behind its insolvency in 2009.
Contrary to analysts' estimates, General Motors has managed to make a profit in the first quarter of this year despite the fact that it had to operate a massive recall service.

The recall service costs totaled 1.3 billion dollars, while restructuring in Europe cost the company about 200 million U.S. dollars. However, General Motors' overall revenue rose by one percent compared to the first quarter of 2013, totaling 37.41 billion dollars. Meanwhile, GM's market share in the U.S. market declined, but the corporation had the situation under control by strict price discipline.

The corporation has continued profit in the U.S. because they reduced dependence on large price cuts granted in the past and the reductions granted for fleets. According to auto analysts, customers from the US still haven't flocked to buy new cars in the first quarter due to adverse weather phenomena developed in North America.

The situation in Europe is better than the first quarter of last year, although GM still has losses on the Old Continent. GM sales rose 0.7 percent in Europe in the first quarter of this year compared with the same period of 2013. But American losses reached 284 million dollars in the same period mainly due to the high cost of restructuring the Opel plant in Bochum, Germany. Without these charges, GM would have reduced losses in Europe by nearly 100 million dollars in the first quarter of the year, explains Chuck Stevens, Chief Financial Officer of General Motors.

"Clearly the headline results are overshadowed by the recall campaign charges -- $1.3 billion -- but when you look underneath that we had strong performance across the board," Stevens declared GM's headquarters in Detroit for reporters.

"The performance of our core operations was very strong this quarter. 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 in a statement GM's CEO Mary Barra that marked the first quarterly results since taking the position on Jan. 15.

Barra tried hard to limit the adverse effects of the crisis that erupted on February 13. It was then that the announcement about the Chevrolet Cobalt and Pontiac G5 compact cars being defective. This announcement covered 2.59 million vehicles with potential defects on the ignition switches. Because of these defects, the deaths of at least 13 people have been estimated.

More U.S. authorities, the U.S. Congress, federal regulators, and the U.S. Justice Department, are investigating why it took more than a decade for General Motors to recall in cars with defective switches. These switches allow the ignition key to exit the "ON" position, thus stopping the engine and turning off the air bags.
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