Costs of 60 Recalls Cuts GM’s Second Quarter Profits

GM’s faulty ignition switch problems, together with all other recalls so far on 29 million vehicles, though only 22 million in second quarter, cut second quarter loses by 80%. The pre-tax losses claimed come from several fronts, though all involve the recalls. $400 million, so far, has been put into a fund to compensate victims of the faulty ignition switch, 13 dead to date and many accidents. Ken Feinberg is administering the Fund. Feinberg also administered both the 9/11 Fund and BP oil spill Fund. Claims are being accepted for GM’s Fund beginning August 1 until the end of the year. The Fund itself may grow to $600 million or more, with no apparent limit placed on it.

Included in the pre-tax losses claimed are one million repair kits shipped out on recalls, costs of actual repairs, $875 million for what is being called “recall expenses” and the list goes on. GM’s second quarter profits are stated at $0.2 billion for the second quarter. Absent this history making number of 60 recalls and consequences of them, GM’s profits would have been up this year from what they were second quarter of last year.

Where Does GM Go From Here?

GM stepped up with an internal investigation resulting in what is being called the Valkus Report, after its author, Anton Valkus, former US Attorney. The 315 page report cites “a pattern of incompetence and neglect” at GM resulting in precisely what has happened. With the Justice Department’s continuing its investigation into why GM took so long to deal with this ignition problem when it had been discussed internally for quite some time, GM’s financial woes may not be over. If wrongdoing is found by the Department of Justice, fines could be in the billions.