General Motors reported a net income of $190 million in the second quarter, or equivalent to 11 cents per share, compared to $1.2 billion or 75 cents per share in the corresponding period last year.
The huge drop is due to the numerous recall orders issued by the company during the quarter, including a compensation fund worth at least $400 million for people injured or killed due to the defective ignition switch issue that has been linked to 13 fatalities at minimum.
However, GM said that the company expects improvements in its operating profit for the year, with future costs for recall orders slightly higher than rates in the past.
"We're on or ahead of the plan we shared in January," said GM Chief Financial Officer Chuck Stevens. "Our expectation is that the second half of the year will be better than the first half."
As per Stevens, the $400 million figure used for the compensation fund of the defective ignition switch victims was calculated from actuarial data, with the company not revealing if there are expectations for the number of fatalities linked to the issue to increase.
Stevens added that the compensation fund will have no cap. Attorney Kenneth Feinberg, who will be administering the compensation fund for GM, will determine the final payouts but was not involved in deciding the final amount.
Safety advocates, however, have pushed GM in the past to set the compensation fund amount to $1 billion.
GM's revenue slightly increased to $39.6 billion, falling just short of the expected $40.59 billion set by analysts.
Sales in North America and International Operations increased by 5.7 percent, while sales in Europe and South America decreased by 11 percent and 18 percent, respectively.
The operating profit of the company, which includes recall order costs of about $1 billion, decreased by 30 percent to $1.39 billion.
"GM is going to take a hit because of the recalls that have been happening over the last several months. The question is, how much? Sales haven't slowed as much as many people expected, thanks in part to a clear recall strategy from GM as it relates to public perception, as well as the introduction of solid, new product," said Kelley Blue Book analyst Akshay Anand.
GM CEO Mary Barra, praising the company's resilience amid the numerous recall orders being issued, said that GM had addressed the mistakes made in the past doing an overhaul of its engineering department and making improvements on safety procedures.
"We are taking responsibility for what happened," Barra said.
