GM Reports 3rd-Biggest Loss in U.S. History

Automaker Finds Bright Spot In Dismal 3rd-Quarter Results

This photo released by General Motors shows the Carnegie Mellon University Tartan Racing Team, with its Chevrolet Tahoe Boss entry, taking the checkered flag after completing the 60-mile course Saturday, Nov. 3, 2007 in Victorville, California. The Carnegie Mellon University Tartan Racing Team walked away with a $2 million prize for coming in first in this year's Pentagon-sponsored robot race held at a former Air Force base. (AP Photo/General Motors) (AP)

Executives at General Motors said yesterday that improvements in the company's North American division were evidence that a turnaround was on track despite a staggering $39 billion third-quarter loss.

GM's loss was one of the largest ever for a U.S. company, trailing only AOL Time Warner's $54.2 billion loss in the first quarter of 2002 and a $41.8 billion first-quarter loss by JDS Uniphase in 2001. GM shares fell 6 percent yesterday.

Yet financial analysts said the losses may not indicate much about GM's future. GM recently signed a labor contract that is expected to make the company more competitive with foreign rivals such as Toyota Motor, and they say GM's outlook will be determined by the success of its new models.

"I didn't see anything in the core operating numbers today that was shocking," said Pete Hastings, an analyst at the investment banking firm Morgan Keegan. "GM is pretty much in the same condition they were in before. They are still faced with the same task of selling new models in a tough market. The new models are performing well."

However, GM and the rest of the U.S. auto industry are bracing for what could be a dark period, not only because of falling sales but also because of spillover from problems in the housing sector. Frederick A. "Fritz" Henderson, GM's chief financial officer, described the market as "challenging" and "below trend" yesterday.

"We like our position, but the North American business -- and particularly the U.S. market -- is challenging," Henderson said.

GM's third-quarter results differed starkly from Toyota's, which were also issued yesterday. Profit at the Japanese automaker rose to $3.94 billion. Its results were lifted by booming U.S. sales and a weak yen that added nearly $1.3 billion to the bottom line. Toyota boosted its dividend and raised its profit forecast for the year to almost $15 billion.

Most of GM's $39 billion loss came from a big accounting charge, which resulted from a change in the way the country accounted for tax credits accumulated from prior years, the company said. Henderson said the charge did not affect cash flow or automotive operations.

Although the losses announced yesterday at GM are on paper only, they represent an assessment that the company will not earn profits large enough or steady enough in the near future to use the tax credits built up from previous losses.

GM reported a narrower loss in its North American division -- $247 million, compared with $660 million in the third quarter last year. GM said the improvement reflected stronger sales of more profitable vehicle lines, although the division was hurt by lower overall volume and higher material costs.

In Europe, GM's loss widened to $90 million, from $39 million a year earlier. GM blamed softness in the German market and unfavorable currency exchange. Profit in GM's Asia-Pacific region increased to $138 million in the quarter, from $57 million a year earlier. Profit in Latin America rose to $340 million, from $183 million.

GM also suffered as the housing slump took hold at GMAC Financial Services, the lending company GM co-owns with Cerberus Capital Management. As a stand-alone company, GMAC reported a loss of $1.6 billion in the third quarter.

The diverging paths of GM and Toyota could bring renewed calls for examination of U.S. trade policies and foreign exchange issues. Labor leaders and industry executives have frequently complained that government policies give Toyota and other Asian automakers an unfair competitive advantage.

"We don't have anything to do with the yen, and our focus is to continue to localize our production capacity," said Steven Curtis, a Toyota spokesman. He said Toyota is building new factories in North American that will expand Toyota's production by 600,000 vehicles by 2010.

"We are adding more production capacity than any other automaker in North America," he said.