General Motors Co.’s share price down, expects 1.3-billion-dollar charge, puts engineers on paid leave

April 11, 2014 8:50 am

General Motors Co. made an official statement, revealing that it is charged 1.3 billion dollars for the cost of recall-related repairs during the financial quarter that was through on March 31st. This makes the situation for the company even tougher, as it may post its first quarterly loss since 2009.

Before the recalls, the company has warned that its adjusted earnings before interest and tax for the first quarter of the current financial year may be lower than previously expected due to restructuring costs and currency exchange rates. As reported by Bloomberg, the president of the company – Mr. Dan Ammann said in a statement before analysts on January the 15th this year: “Expect a materially softer Q1 and a bigger peak in Q2 into the middle of the year.”

The results are scheduled to be released on April 24th. In the statement, published on the website of the company, General Motors Co. explained that its first-quarter charge includes 750 million dollars in previously announced recall costs.

The announcement comes at a time when General Motors Co. is facing the withdrawal issues due to defects in several of company’s vehicle models. The number of vehicles with defect parts that needed to be replaced was 2.2 million in the U.S. According to the company’s statement, General Motors would be engaged with replacing not only the ignition keys, but also the ignition lock cylinders.

In February and March 2014 the company pulled back 2.6 million compact cars, which had been manufactured between 2002 and 2007 and had had problems with the ignition switches as a result of which the vehicles were able to enter from the “run” to “accessory” position while in motion.

General Motors said in its statement, cited by Financial Times: “The cylinders can allow removal of the ignition key while the engine is running, leading to a possible rollaway, crash and occupant or pedestrian injuries.”

The company also put two engineers participating in the development of the Chevrolet Cobalt model on paid leave. According to people with knowledge of the process, who asked not to be named, the engineers are Ray DeGiorgio and Gary Altman. General Motors Co.’s Chief Executive Officer Mary Barra made a statement on the matter, but refused to identify the engineers.

Ms. Barra said in the statement, cited by the Wall Street Journal: “This is an interim step as we seek the truth about what happened. It was a difficult decision, but I believe it is best for GM.”

According to Financial Times, shares of General Motors Co. lost 0.95% to close at 33.30 USD on the NYSE yesterday, while company’s one-year return rate was 17.38%. According to data published by CNN Money, the 18 analysts offering 12-month price forecasts for General Motors Co have a median target of 46.00, with a high estimate of 50.00 and a low estimate of 32.00. The median estimate represents a +38.14% increase from the last price of 33.30.

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