GM may post first quarterly loss since 2009 – USA TODAY
General Motors could report Thursday its first unprofitable quarter in four years, largely due to the estimated $1.3 billion cost of its ignition switch recall, but it remains profitable in North America aside from one-time accounting provisions.
So far U.S. car buyers aren’t fleeing GM dealerships despite the ignition switch defect affecting 2.6 million recalled small cars, mostly from the 2003 through 2007 model years. The defect has been linked to at least 31 crashes and 13 deaths.
But GM sells more vehicles in China, now the world’s largest auto market, than in the U.S. Despite the recall the automaker’s U.S. sales rose 4% in March from a year ago.
Setting aside one-time accounting charges GM expects “solid core operating performance” for the first three months of 2014. But the $1.3 billion charge for a series of recalls, including the defective ignition switches, and a $400 million charge reflecting a devalued Venezuelan currency could eclipse global operating profits.
Investors will also want to see if GM is experiencing problems in Russia, where a tensions in Ukraine has prolonged an economic downturn already in progress.
The automaker has recalled nearly 7 million vehicles so far in 2014, including its new full-size pickup trucks to fix a transmission oil line.
GM has also hired Kenneth Feinberg to administer a fund the company may create to compensate families who lost loved ones or other people injured in accidents caused by the faulty ignition switches. Eventually GM could pay substantial fines to federal regulators, but those aren’t expected to be reflected in Thursday’s report.
Earlier this week the company asked a bankruptcy judge in New York to uphold a provision in GM’s 2009 restructuring that protected it from product liability lawsuits. The automaker contends it can’t be sued for the declining value of defective cars covered by the ignition switch recall because those defective parts were purchased by “Old GM,” an entity that was left in bankruptcy when “New GM” emerged in July 2009.
With more than $20 billion in cash as of Dec. 31, GM likely can absorb current and future legal and regulatory costs.
Investors have expected a difficult first quarter for several weeks. GM shares have fallen 5% since the beginning of March.
Barclays analyst Brian Johnson said in a research note that he’s projecting a “kitchen sink quarter” for GM, meaning the company will pack as much bad news as possible into one report.
“We believe the results of the quarter will be less relevant for investors, with the focus more on what to expect going forward,” Johnson said. “It may be in GM’s interest to push through additional charges now, which it will not have to face later.”
But Cars.com chief analyst Jesse Toprak expects some negative impact from the recall.
“Certainly there is going to be some impact,” Toprak said. “Where it usually happens … is for the indecisive consumers. If you have not made up your mind in a crowded segment, like mid-size sedans, you might just take the GM vehicles off your consideration list.”
Yet another issue that may impact the first-quarter results is that sales of its profitable fullsize pickup trucks have lagged expectations in recent months. But GM executives have said the pickups profits remain robust because Chevrolet and GMC are not discounting the Silverado and Sierra as some competitors are doing.
Investors will also focus on how much GM has reduced losses in Europe where it has not posted an operating profit since 1999.