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GM set for a huge quarterly loss GM reports record quarterly loss
(41 minutes later)
General Motors (GM) is set to report a huge loss for the third quarter after the carmaker said it would book a $39bn (£18.5bn) non-cash charge. General Motors (GM) has reported a record quarterly loss of $39bn (£18.5bn), due almost entirely to a massive one-off accounting charge.
GM said it was following accounting guidelines with respect to deferred tax assets in three countries.GM said it was following accounting guidelines with respect to deferred tax assets in three countries.
The company accumulated billions of dollars in potential tax credits in the US, Canada and Germany. Excluding the charge, GM still posted a net $1.6bn loss for July to September, compared with a $147m loss for the same period a year earlier.
The carmaker decided it could no longer count on earning enough money to use the credits before they expired. Following the news, GM shares fell 7% in pre-market trading.
Yet accounting rules would still allow GM to claim those credits if it bounced back to profitability and could use the amounts to offset future taxes, a GM spokeswoman said. Deferred tax assets
'More challenging market' GM said it was taking the charge because it had accumulated billions of dollars in potential tax credits in the US, Canada and Germany.
GM also cited "ongoing weakness" at its former subsidiary GMAC, a finance company, in taking the charge.
GM continues to believe that its new product introductions, combined with the new GM-UAW labour agreement... will significantly improve GM's competitive position Fritz Henderson, GM chief financial officerGM continues to believe that its new product introductions, combined with the new GM-UAW labour agreement... will significantly improve GM's competitive position Fritz Henderson, GM chief financial officer
"The company faces more challenging near-term automotive market conditions in the US and Germany," GM added. The company decided that because of its losses, it could no longer count on earning enough money to use the credits before they expired.
US auto sales are on track for their lowest industry-wide total in almost a decade at about 16 million units. Executives at Ford Motor and Chrysler have suggested the market could slide further in 2008.
The company will release its quarterly earnings later on Wednesday.
GM recorded a net profit of $953m in the first six months of 2007 after losing more than $12bn in 2005 and 2006.GM recorded a net profit of $953m in the first six months of 2007 after losing more than $12bn in 2005 and 2006.
However, accounting rules would still allow GM to claim those credits if it bounced back to profitability and could use the amounts to offset future taxes, a GM spokeswoman said.
The charge will not affect the company's cashflow as it undergoes a sweeping restructuring programme, GM said in a statement.
Long-term outlookLong-term outlook
The charge will not affect the company's cashflow as it undergoes a sweeping restructuring program, GM said in a statement. "The company faces more challenging near-term automotive market conditions in the US and Germany," GM said.
US auto sales are on track for their lowest industry-wide total in almost a decade at about 16 million units. Executives at Ford Motor and Chrysler have suggested the market could slide further in 2008.
GM chief financial officer Fritz Henderson said in a statement that the announced charges did not change its more optimistic "long-term automotive financial outlook."GM chief financial officer Fritz Henderson said in a statement that the announced charges did not change its more optimistic "long-term automotive financial outlook."
"GM continues to believe that its new product introductions, combined with the new GM-UAW labour agreement, once fully implemented, will significantly improve GM's competitive position [in the United States]," Mr Henderson said."GM continues to believe that its new product introductions, combined with the new GM-UAW labour agreement, once fully implemented, will significantly improve GM's competitive position [in the United States]," Mr Henderson said.
A return to profitability would "better position the company to utilise tax benefits in the US and Canada in the future," he added.A return to profitability would "better position the company to utilise tax benefits in the US and Canada in the future," he added.