GM posts $39 billion loss in third quarter
By Tom Krisher, AP Auto Writer
DETROIT — General Motors (GM) posted a company record $39 billion loss in the third quarter, as a charge involving unused tax credits brought an abrupt end to a string of three profitable quarters for the nation's largest automaker.
The loss reported Wednesday was one of the biggest quarterly corporate deficits ever, and it sent GM shares down more than 5% in premarket trading.
GM attributed the third-quarter loss to a $38.6 billion non-cash charge largely related to establishing a valuation allowance against accumulated deferred tax credits in the U.S., Canada and Germany, as well as mortgage losses at GM's former financial arm, GMAC Financial Services.
Accounting rules require that companies expecting to keep losing money cannot keep carrying deferred tax credits indefinitely and must write down their value.
GM Chairman and Chief Executive Rick Wagoner said he knows the charge will be difficult to comprehend for some.
"I think you'd have to have a Ph.D. in accounting to understand it," Wagoner said during an interview on "The Paul W. Smith Show" on WJR-AM.
"It doesn't have any impact at all," he said. "I would encourage people not to overreact in a negative way to it."
What might be more troubling for GM, though, is continuing losses in its home market, North America, where it reported a net loss from continuing operations of $247 million without the charge for the latest quarter. That was, however, an improvement from the loss of $667 million in the year-ago period.
The company's overall net loss amounted to $68.85 a share, compared with a net loss of $147 million, or 26 cents a share, in the third quarter of last year.
It also included a favorable $3.5 billion after-tax gain on the $5.4 billion sale of Allison Transmission in August.
Without special items, the company reported a $1.6 billion loss, or $2.80 a share.
The company reported record third-quarter automotive revenue of $43.1 billion and record global sales for the quarter of 2.39 million cars and trucks.
"We continue to implement the key elements of our North America turnaround strategy, and these initiatives are driving steady improvement in our financial results, despite challenging North America market conditions," Wagoner said.
The huge charge, announced after the stock market closed Tuesday, surprised analysts who had expected a relatively small loss excluding special items. Seventeen analysts polled by Thomson Financial expected the company to lose 25 cents per share without the charge.
Chief Financial Officer Fritz Henderson said accounting rules require the company to take the non-cash charge because its cumulative three-year quarterly earnings worsened.
When the company becomes profitable, the tax benefits can still be used, Henderson said.
"Economically I would say the tax benefits are there. We can use them when we turn profitable. So nothing has changed in terms of the economics of the business," he said Wednesday.
GM reported a loss of $757 million from its 49% stake in GMAC Financial Services, due largely to losses at ResCap, GMAC's mortgage arm.
GMAC formerly was controlled by GM. Cerberus Capital Management and other private-equity firms bought a 51% stake in GMAC in November 2006, before weakness in the mortgage industry became widely known.
GMAC on Thursday posted a $1.6 billion loss for the third quarter. It included a $2.3 billion loss at ResCap, which offset profits elsewhere.
"Obviously ResCap turned into a pretty substantial loss position, and it affected us directly," Henderson said.
He said GM's automotive business ran at about a break-even level, posting adjusted net income of $122 million for the quarter due largely to profits at its Asia Pacific and Latin America and Middle East regions.
He would not predict when GM would return to profitability.
Even though GM has posted some positive quarters the past year, all together its performance from the last 12 quarters adds up to a loss.
In March, GM warned that it could lose the tax benefit if it continued failing to make money. At that time, it said the charge would be $34.8 billion, and the company considered it "more likely than not that we will have U.S. taxable income in the future," that would allow it to take the credits.
Since then, the automotive markets in the USA — its most important market — and Germany have weakened considerably, and will continue to be challenging in the near term, GM said.
Print | posted on Wednesday, November 07, 2007 10:26 AM