GM may take $1.3-billion charge over faulty ignition switch recall

Article by Christian Andrei, on April 12, 2014

General Motors expects to take a $1.3-billion charge in relation to its faulty ignition switch recall in the first quarter of 2014. The carmaker initially estimated on March 31 that it would take a $750 million charge on the recall. The $1.3 billion charge includes the cost of repairing affected vehicles as well as providing loaner vehicles to customers who requested them.

The hiked charge came as GM instructed dealerships to replace the ignition switches on 2.6 million small cars covering 2003-2011 model years. The carmaker recently disclosed that it is aware of several hundred complaints of keys coming out of ignitions, with one crash after rolling away and one injury claim but no deaths.

GM disclosed it would replace all keys having a slot for the key ring with keys with smaller hole in the center. Engineers first proposed modifying the slot to a hole in 2005, but the modification was later cancelled. It was later implemented in the 2010 model year. GM says the hole trims the chance that a heavy key chain could unintendedly turn the key out of the “run” position.

The $1.3-billion charge as well as a $400-million charge related to Venezuelan currency exchange rates is seen to affect the first quarter earnings at GM, which is due to be released on April 24.

GM posted $1.8 billion in adjusted earnings before interest and taxes in the first quarter of 2013. GM said in a statement that on a preliminary basis, it expects to report solid core operating performance for the first quarter, despite the $1.3 billion recall charge.

In a related matter, Standard & Poor's Ratings Services disclosed the uncertainties related to the recalls hike the possibility that a potential upgrade to GM's credit rating would not happen this year, but in 2015. S&P said if the developments become worse than expected, it may revised the outlook or place a negative rating action. [source: WashingtonPost]

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