General Motors Corp. posted a company record $39 billion loss for 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 was one of the biggest quarterly corporate deficits ever. GM's shares closed more than 6 per cent lower on Wednesday. Standard & Poor's downgraded GM shares from hold to sell, and said GM's near-term outlook has worsened significantly in part due to reduced US sales.
GM attributed most of the third-quarter loss to a $38.6 billion non-cash charge related to accumulated deferred tax credits in the US, Canada and Germany.
Accounting rules require companies to write down the value of such credits if they have scant prospects for a return to profitability in the near term.
GM also reported a loss of $757 million from its 49 per cent stake in GMAC Financial Services, due largely to losses at ResCap, GMAC's mortgage arm.
It was the second-worst quarterly net loss in US corporate history, exceeded only by AOL Time Warner's $44.9 billion loss in the fourth quarter of 2002 when the value of the AOL operations was marked down, according to Howard Silverblatt, a senior index analyst for Standard & Poor's.
No policy change
GM Chairman and Chief Executive Rick Wagoner said the accounting shift is not easy to explain but does not have a substantial impact on the business.
"I would stress: No impact whatsoever on our cash position, no impact on our ability to use the tax offsets in the future, and from my perspective, really no change whatsoever in our outlook or optimism about the future of getting the business turned around," he said.
What might be considered more troubling for GM is continuing losses in its home market, North America, where it reported a net loss of $247 million without the charge for the latest quarter. That compares with a net loss of $667 million in the year-ago period.
The company reported an overall loss of $1.6 billion, or $2.80 per share, excluding special items. Besides the accounting change, special items included a $3.5 billion after-tax gain on the $5.4 billion sale of Allison Transmission in August.
The net loss contrasts with rival Toyota Motor Corp.'s announcement on Wednesday that its profit for the fiscal second quarter rose 11 per cent to a company record $4 billion. Toyota and GM are vying for the title of world's largest automaker by sales this year.
GM's chief financial officer, Fritz Henderson, said the company is bullish about its new products and the money it will save from a new four-year contract with the United Auto Workers, which was approved by workers last month and will be reflected in future quarters.
An agreement to put GM's retiree health care liability into a union-run trust will not affect GM's books until 2010, but the automaker will see some benefits from the contract starting next year, he said.