GM overcomes huge recall costs to post healthy profit

General Motors’ third-quarter profit fell slightly, but the company rode strong North American sales to overcome $1.5 billion in costs from its deadly ignition switch recall. Its shares rose almost 6 percent.

The Detroit automaker’s net income slipped 1.4 percent from a year ago, but still was $1.36 billion, or 84 cents per share. That compares with $1.38 billion, or 81 cents per share, a year ago. Without the recall costs, GM would have made a $1.50 per share, soundly beating Wall Street expectations.

The company posted a record $3.3 billion pretax profit in North America largely on high-profit truck and SUV sales, more than offsetting a small decline in China and a loss in South America. This summer, the company announced another expansion of its Arlington Assembly Plant, which is operating six days a week pumping out Chevrolet Tahoes and Suburbans, GMC Yukons and Cadillac Escalades. The company has more than 4,000 employees in Arlington.

GM Financial, the company’s Fort Worth-based auto loan arm, posted a 13 percent profit gain to $231 million.

The earnings news pushed GM shares up $1.94, or 5.8 percent, to $35.42 on Wednesday.

Chief Financial Officer Chuck Stevens said GM’s North American profit margin, the percent of revenue it gets to keep, hit a record 11.8 percent for the quarter. The company had set a goal of 10 percent for North American margins by next year, but Stevens said GM will achieve the target in 2015, a year early.

Revenue from July through September fell 1 percent to $38.8 billion, but still beat analysts’ forecasts. Almost three quarters of GM’s revenue came from North America.

In China, GM reported pretax income of $463 million, down 4 percent from a year ago, but profit margins rose from 9.6 percent to 9.8 percent because the company sold more expensive Cadillacs and SUVs. “China has not fallen off the cliff as everyone had expected,” Stevens said.

South America, though, is still the big trouble spot for GM and other companies. The company lost $217 million in the region, almost seven times the loss from a year ago, and Stevens said there isn’t an end in sight to economic troubles there. In Europe, GM’s loss narrowed to $231 million, and Stevens said GM is still on track to be profitable there next year.

The recall costs included $900 million to fend off criminal prosecution over the ignition-switch scandal and about $600 million to settle multiple wrongful death and shareholder lawsuits stemming from the problem.

The switches in older model small cars such as the Chevy Cobalt can slip out of the “run” position and cut off the engine. They have been linked to at least 169 deaths.

GM said in September that ignition-switch scandal cost it over $5.3 billion.

This story was originally published October 21, 2015 at 4:50 PM with the headline "GM overcomes huge recall costs to post healthy profit."