GM to pay victims at least $400 million
NEW YORK (CNNMoney) — General Motors expects to pay between $400 million to $600 million to compensate victims of ifs faulty ignition switch tied to at least 13 deaths.
The families of those killed and people injured in crashes involving the ignition switch can start filing for payments next month.
The problem with the ignition switch can cause the car to shut off while driving, disabling safety features such as air bags, anti-lock brakes and power steering. GM has admitted that its employees knew of the problem a decade before recalling 2.6 million cars earlier this year.
The automaker has been under fire from Congressional, Justice Department and federal safety regulators for the delay and could face criminal charges.
GM said it set aside $400 million in the second quarter to cover victims’ payments. But it said Thursday in its quarterly results that because its compensation program does not have a cap, it might have to pay an additional $200 million in future quarters.
The company also set aside an additional $874 million in the quarter for the cost of repairing the record 30 million cars it has recalled so far this year.
The combined $1.3 billion in costs from recalls and victim compensation slashed company profits about 80% from a year ago. This is the second straight quarter that costs associated with recalls has essentially wiped out the company’s profits.
Despite the attention to the recall problems, car sales remained relatively strong. U.S. sales rose nearly 7% to 806,000 cars and trucks as its market share stayed unchanged. The company also reported record sales in China, its largest market. Declines in sales in South America and Europe left global sales little changed at 2.5 million vehicles, but the company posted increased revenue.
Shares of GM were down about 2% in premarket trading following the report.
GM hired Kenneth Feinberg, an expert in victim compensation for disasters such as the 9/11 terrorist attacks and the BP oil spill in the Gulf of Mexico, to come up with a formula for compensating victims of the flawed ignition system. His formula offers the families of those killed more than $1 million each.
In other earnings news, GM rival Ford Motor reported its first profit in Europe in three years in the quarter along with a record profit for the company in North America. Those results lifted the company’s net income despite a slight drop in global vehicle sales and revenue.
Shares of Ford were up in premarket trading on its results.
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