General Motors Corp., the world’s largest automaker, reported a record $39 billion quarterly loss after three money-losing years forced the company to write down the value of future tax benefits.
GM fell as much as 8.8 percent in early trading after the size of the loss surprised analysts. Excluding the tax writedown, the deficit was $2.80 a share, more than 10 times the 22 cents estimated by 15 analysts surveyed by Bloomberg.
``This has been a challenging year, for sure,’’ GM Chief Financial Officer Fritz Henderson told reporters this morning in Detroit.
GM is writing down the tax assets because it may not be able to generate enough earnings to use the benefits. The move reflects a darkening outlook for the U.S. economy, as GM cited mortgage-related losses at its partly owned GMAC LLC finance unit and ``more challenging’’ auto-market conditions in the U.S. and Germany.
GM’s loss of $68.85 per share widened from a deficit of $147 million, or 26 cents, a year earlier. The non-cash charge is related to deferred tax assets in the U.S., Canada and Germany, the Detroit-based company said in a statement today.
Wagoner had already reached labor agreements to close plants and trim health-care expenses, which the company has said would reduce its costs by $9 billion this year.
GM has said the union retiree health fund will drain cash next year by $3.3 billion before adding $2.8 billion to cash flow in 2010 and $3.3 billion in 2011.
GM’s 8.375 percent note due July 2033 rose 0.5 cent to 89.75 cents on the dollar yesterday, according to Trace, the NASD’s bond-price reporting service. The yield fell to 9.44 percent. Jeff Green and Greg Bensinger, Bloomberg.com
GM attributed the third-quarter loss to a $38.6 billion noncash 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.
But 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 knew the charge would 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 considered 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 compares with a net loss of $667 million in the year-ago period. Tom Krisher, Hosted.AP.org
“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,” said GM Chairman and Chief Executive Rick Wagoner in a written statement.
The latest results also included a gain of more than $3.5 billion related to the sale of its Allison Transmission unit; as well as charges of $1.56 billion in pension service costs, $387 million for restructuring actions and $350 million related to a reorganization at auto-parts supplier and former GM unit Delphi Corp.
Total net sales in revenue in the latest quarter fell 10% to $43.83 billion from $48.89 billion. Automotive revenue rose 8.9% $43.13 billion. Analysts were looking for $40.29 billion.
GM’s prospects have improved since the auto giant in October cemented a deal with the United Auto Workers union that provides cost relief and work for U.S. plants. The deal would reduce its cost disadvantage compared to Toyota Motor Corp. and other foreign rivals that have grabbed U.S. market share. The UAW struck GM for two days before reaching the agreement. Mike Barris, OnLine WSJ.com
| 
|