DETROIT (AP) – If it weren’t for the recalls, 2014 would have been a stellar year for General Motors.
Even with $2.8 billion in pretax costs to fix more than 42 million recalled vehicles worldwide and $400 million set aside for death and injury claims, GM still managed to turn a $2.8 billion profit. It plans to raise the quarterly dividend.
Except for the recalls, most of the stars lined up last year for the Detroit automaker. Gas prices dropped more than a buck to $2.26 per gallon. The US economy gained steam. Cheap credit was abundant.
Combined, they sent buyers to GM’s newly redesigned and lucrative pickup trucks and large SUVs in North America, the company’s most profitable market. At the same time, chief competitor Ford’s truck plants were down much of the year while it switched to a new pickup with a risky aluminum body. Sales in China grew faster than the market. Global sales rose 2 per cent to 9.9 million vehicles, a record.
Things were so good, GM plans to raise its dividend 20 per cent next quarter, to 36 cents, pending board approval. And the company said the dividend could go even higher this year once GM gets a better handle on recall costs.
Yes, there was trouble in Europe, Russia and South America, but by and large, GM had a good year.
Investors agreed. GM shares rose 5.4 per cent Wednesday. The gain could be the largest one-day increase since July 3, 2012, when the stock closed up 5.6 per cent.
For the full year, GM’s net income fell 26 per cent, from $3.8 billion in 2013. The company earned $1.65 per share. Excluding one-time items, GM earned $3.05 per share, beating Wall Street’s expectation of $2.64, according to FactSet. Revenue rose slightly to $155.9 billion.
“We’re really going to carry the positive momentum into 2015,” Chief Financial Officer Chuck Stevens said. “We expect both aggregate earnings and profit margins to improve in all of our automotive regions.”
Stevens said earnings were strong when recall costs aren’t counted. The company earned $6.5 billion before interest and taxes last year, and that would have been more than $9 billion without the recalls, he said. Legal expenses rose by more than $300 million, and that’s expected to continue in 2015. Overall, the recalls cost GM $1.10 per share.
In North America, GM’s most profitable region, the company earned $6.6 billion before taxes, 11 per cent below 2013. That will bring record profit-sharing checks of about $9,000 for 48,400 eligible union factory workers later this month. To reward employees, GM excluded recall costs and measured the profit-sharing based on core earnings.
Stevens said the company is on its way to achieving a 10 per cent North American profit margin next year. Last year the margin, which is the percentage of revenue a company gets to keep, was 6.5 per cent. Without recalls, it was 8.9 per cent.