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US General Motors’ profit skids 85%

General Motors on Thursday posted a sharp drop in second-quarter profit as the automaker took heavy charges for safety recalls and a compensation fund for victims of faulty ignition switches. GM net profit dived 85 per cent to $190 million, missing analyst expectations. A year ago the company posted a $1.26 billion profit.

Adjusted earnings per share of 58 cents came in a penny below estimates. The largest American automaker took a pre-tax net loss from special items of $1.3 billion, and a $1.2 billion charge mainly for recall-related repairs of vehicles.

It took a special charge of $400 million for the ignition-switch compensation program. ‘There is no cap on this programme, but this charge is the company's best estimate of the amounts that may be paid to claimants,’ GM said in a statement. The company estimated the cost of the programme could increase by $200 million. GM said it recalled about 22 million vehicles in the second quarter, bringing the first half total to roughly 29 million.

The Detroit-based company said it was estimating future recall costs in North America and, as a result, it was taking a $900 million charge in the second quarter for possible recalls for up to the next 10 years on 30 million GM vehicles currently on the road. GM has been under scrutiny since publicly acknowledging 13 deaths in 54 accidents linked to the ignition-switch defect in models no longer being manufactured.
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