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AKIPRESS.COM - General Motors may report 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, USA Today reported.
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, 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.
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.
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 December 31, GM likely can absorb current and future legal and regulatory costs.
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.