GM to Take $39 Billion Charge
Tax Credits Removed Under Accounting Rules, Company Says

By Sholnn Freeman
Washington Post Staff Writer
Wednesday, November 7, 2007

General Motors announced yesterday that it would take a $39 billion non-cash, accounting-related charge in the third quarter. Despite the size of the charge, GM said it did not affect cash flow at the company or affect automotive operations.

GM said accounting rules required it to remove from its balance sheet certain tax-related credits that had built up in past years as the company reported losses. But troubles in some of the company's biggest markets made it less likely that GM would post enough profit to allow it to use the credits, leading to the charge.

In a statement, GM said the charge was triggered by losses in the United States, Canada and Germany as well as "substantial losses" at Residential Capital, the mortgage subsidiary that GM owns with Cerberus Capital Management. It also cited "challenging near-term automotive market conditions" in the United States and Germany.

The size of the write-down surprised analysts.

"They seem to be taking all the bad news at once here -- one big write-off rather than a series of small ones," said David Healy, analyst at Burnham Securities.

GM reports third-quarter earnings today.

In a written statement, Frederick A. "Fritz" Henderson, GM's vice chairman and chief financial officer, said the charge does not change the company's view of its long-term automotive financial outlook.

"GM continues to believe that its new product introductions, combined with the new GM-UAW labor agreement, once fully implemented, will significantly improve GM's competitive position in the U.S. and better position the company to utilize tax benefits in the U.S. and Canada in the future," Henderson said.