GM Second Quarter Earnings: Sales Growth Drives On Despite Recall Nightmare

UPDATE: 9:38 a.m. EST:

GM Market Share by Region, Q2 2014 Compared to Q2 2013

Market share down across the board.

* North America market share down from 17.3 percent to 17.2 percent.
* China: down from 13.9 percent to 13.6 percent.
* Europe: down from 7.7 percent to 6.8 percent.
* South America: down from 17.1 percent to 16.7 percent.
* Brazil: down from 17 percent to 16.7 percent.
* Global market share: down from 11.6 percent to 11.3 percent.

UPDATE: 9:27 a.m. EST:

GM Global Deliveries by Region Q2 2014 Compared to Q2 2013

China and the U.S. float global sales.

* North America sales up 5.7 percent to 930,000.
* China sales increased 8.1 percent to 812,000.
* Europe sales declined 11.3 percent to 336,000.
* South America sales fell 18.3 percent to 214,000.
* Brazil sales fell 13.4 percent to 142,000.
* Global sales increased 0.6 percent to 2.51 million vehicles.

UPDATE: 9:10 a.m. EST:

GM Financial reported a 4.9 percent increase in sales linked to sub-prime lending (higher-interest loans to car buyers with low credit scores) compared to last year, from 8.1 percent of total loans to 8.5 percent. The New York Times reported on Sunday that this form of risky lending is booming in the U.S. used-car market.

GM Finanical's U.S. and Canadian leases are down 17.8 percent and 68 percent respectively.

UPDATE: 8:49 a.m. EST:

GM’s Second Quarter 2014 Recall Activity

* Twenty-two million vehicles recalled in the three months ended June 30. Nearly 30 million vehicles recalled since the start of the year.
* Current estimate for compensating the victims of ignition-switch related crashes: $400 million.
* Number of vehicles with ignition switch problems that have had replacement parts installed: 560,000. One million replacement parts have been shipped to dealers. Between 8 and 9 million GM cars have been recalled for problems related to the ignition swiatch.

UPDATE 8:27 a.m. EST: General Motors Co. (NYSE:GM) said Thursday the $1.5 billion in recall costs in its second quarter knocked net profit down 85 percent compared to the same period last year.

For the quarter ended June 30 the Detroit maker of Cadillac, GMC, Chevrolet and Buick earned $190 million in net profit, or 11 cents per share including recall and restructuring expenses. In the same quarter last year, before news broke of the botched ignition switch recall, the company reported $1.2 billion in net income.

Without the recall-related expenses, net income for this past quarter would have been $1.69 billion. Excluding these one-time recall-related charges, GM met analysts’ expectations of 58 cents per share.

In total, the company took the following recall-related pretax charges: $400 million to compensate victims of ignition-switch-related accidents; $1.2 billion for recalls announced in the second quarter; and $874 million to cover recall expenses over the next decade. The after-tax expense for these charges came to $1.5 billion.

Original story written ahead of GM's second-quarter earnings release begins here:

General Motors Co. (NYSE:GM) has recalled more vehicles this year than it sold in the U.S. over the last decade, and on Thursday we’ll get a glimpse of how many billions of dollars the Detroit automaker's past manufacturing sins will cost it.

But despite nightmare publicity surrounding the defective ignition switches responsible for at least 16 deaths and multiple lawsuits, GM has seen its sales grow almost across the board of its line of cars, trucks and SUVs.

“GM’s total and retail sales have only improved since news of the ignition switch recall affecting older model cars became widely reported upon in the media,” Ryan Brinkman, automotive equity research analyst at J.P. Morgan, said in a research note.

General Motors Co. (NYSE:GM) will report the financial results for its second quarter ended June 30 before markets open Thursday morning in New York. The world’s third-largest car company by sales volume is expected to report $1 billion in profit, down 31 percent from the same quarter last year in part because of the recall-related charges in the quarter. Revenue is estimated to grow 3.9 percent to $40.59 billion largely on stronger North American sales.

GM says will take a $1.2 billion hit in the quarter for the cost of recall-related repairs, bringing the total recall costs so far this year to $2.5 billion. GM has issued 60 safety-related recalls since Jan. 1, or about 30 million vehicles worldwide, most of them in the U.S. On Wednesday, the company announced a recall of nearly 718,000 vehicles, including recent-model-year Chevrolet Camaros, GMC Terrains and Cadillac SRXs.

GM’s Chevrolet brand sedans seem to be feeling the effect of the recalls as sales of the Cruze, Impala and Malibu fell by double digits in June. But GM’s core strength is in pickups and SUVs. Sales of the Silverado and Sierra trucks built on the company’s new K2XX platform have been strong. Chevy Tahoe SUV sales are up 12.3 percent in the first half of the year while Suburban deliveries have been growing in the high single digits.

What to look for

GM is expected to outline further costs to the largest vehicle recall in history on Thursday, as well as address weakness in the South American market that’s been hit with a currency devaluation in Venezuela, a slowdown in Brazil and Argentina’s ongoing debt crisis.

The company is expected to steady North American growth amid a rebounding auto market that will hit pre-recession levels of sales this year. The company is in the midst of refreshing and introducing a large number of vehicles, which will help maintain the company’s growth.

GM is the second largest foreign automaker in China with a dozen joint ventures, including with the top domestic company SAIC. Look for GM to address progress in the world’s largest auto market, especially in its luxury auto sales (the Cadillac) where profit margins are higher. Europe has seen modest improvement, so GM should see growth in Opel-Vauxhall.

But the costs of the recalls have only just begun. In addition to paying for repairs, GM faces a litany of legal claims against it for death and injury related to the fatal ignition switch failure. The company should reveal more details about these expenses on Thursday.