General Motors announced its second quarter earnings, Thursday, and the company begins to estimate the soaring costs of its recall nightmare. GM's net income fell more than 80 percent from the same time period a year ago. The automaker is reporting income of only $190 million, because it is saying the massive recalls are costing the company $1.2 billion.
In its earning statement, GM also estimates that it needs $400 million to compensate victims for accidents involving the deadly ignition switches. According to the written statement "There is no cap on this program, but this is the company's best estimate of the amounts to be paid to claimants." The press release adds that the costs for the ignition switch compensation program could climb by another $200 million, depending on how many families file claims.
This is the first time that the auto giant has given specific estimates concerning the costs surrounding the recall of nearly 30 million vehicles. Just Wednesday, GM issued six new recalls.
The faulty ignition switches are tied to at least 13 deaths. The company has come under intense scrutiny after it was discovered that some of the engineers were aware of the defect for at least a decade. New CEO Mary Barra has been grilled by congressional leaders, about the company's failure to take action more quickly.
In Thursday's written release, CEO Mary Barra said "We remain focused on keeping our customers at the center of all we do, and executing our plan to operate profitably in every region of the world."
The investigation that triggered the initial recalls determined that the faulty ignition switches could turn the vehicles off while moving leading to accidents. Compounding the problem, in some cases the faulty switches deactivated the vehicles' airbags, increasing the danger for the passengers. Originally, Chevrolet Cobalts, Saturn Ions and Pontiac G5s were recalled, but the company has since expanded the recalls to countless other vehicles.
The National Highway Traffic Safety Administration has more information on all of the vehicles affected.
The ignition switch compensation program is being administered by an outsider, Kenneth Feinberg.