Pickups keep GM in the black; Ford expects stronger future

Pickups keep GM in the black; Ford expects stronger future

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DETROIT -- Recalls and customer-satisfaction efforts took a big bite out of first-quarter earnings at General Motors and Ford Motor Co. GM's net income plunged 86 percent from a year ago, to the lowest level since 2009, and Ford's fell 39 percent, marking its worst quarter since 2010.

But rising transaction prices on pickups helped GM avoid slipping into the red, and Ford said it expects its performance to be "substantially stronger" for the rest of the year.

GM said record-high transaction prices in the first quarter -- driven mostly by its redesigned pickups -- aided its bottom line by $1.7 billion in North America, compared with the same period a year earlier. A charge for recall-related expenses and the cost of restructuring in Europe drained about $1.5 billion, reducing net income to $125 million.

Translation: If not for the lofty pickup pricing, GM's first quarter would have been a whole lot uglier.

"GM may have made the right call to go for price over share" on its redesigned pickups, Barclays Capital analyst Brian Johnson wrote in a research note last week.

At Ford, higher incentives helped pinch Ford's margins in North America. But the biggest hit came from a $410 million increase in warranty reserves, which Ford attributed to an increasing number of "field-service actions," including recalls. Overall, Ford reported net income of $989 million.

"The underlying run rate for the business was much stronger than what was indicated by the bottom line," Ford CFO Bob Shanks said. "It's setting us up for stronger growth, stronger profitability in 2015 and beyond."

GM said $700 million of its first-quarter charges relate to the ignition-switch recalls announced in February and March. Ford has initiated few major recalls this year, but in the fourth quarter it cited $300 million in warranty costs, with much of that related to one of seven recalls affecting the 2013 Escape.

Costly recalls
First-quarter expenses related to recalls and other warranty issues

General Motors

• $700 million: Ignition-switch recall

• $600 million: Other new recalls

Ford Motor

• $340 million: Warranty reserves for 2008-13

• $70 million: 2 recalls of older vehicles

You can reach Mike Colias at mcolias@crain.com.


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