GM shares slide after record loss

DETROIT (Reuters) - General Motors Corp GM.N posted its largest quarterly net loss on Wednesday, reflecting a $39 billion charge related to unclaimed tax credits and a deeper-than-expected loss at former finance subsidiary GMAC.

The massive charge and a cautious outlook from the largest U.S. automaker underscored the risks GM faces three years into a restructuring plan, suffering from stalling U.S. auto sales, a slumping housing market and rising oil prices.

GM's $39 billion charge ranked as the second-largest in U.S. corporate history, trailing only the $45.5 billion write-down AOL took in 2002 in the wake of its troubled merger with Time Warner, according to Standard & Poor's.

GM's third-quarter net loss ballooned to $39 billion, or $68.85 per share, compared with a loss of $147 million, or 26 cents per share a year earlier.

On the adjusted basis tracked by most analysts, GM's loss of $1.6 billion, or $2.80 per share excluding one-time items, was about eight times larger than the average forecast by Wall Street analysts.

GM Chief Financial Officer Fritz Henderson attributed that shortfall to losses in the United States, Canada and Europe and the previously reported loss at GMAC.

GM shares fell 5 percent in response. They are down almost 20 percent since October as investor attention shifted from its cost-saving labor pact with the United Auto Workers and toward more immediate challenges as the automaker tries to recover from combined losses of $12.4 billion over the past two years.

Bear Stearns analyst Peter Nesvold said the numbers showed "things are bad and getting worse" for GM.

Nesvold said investors had been too bullish about both the outlook for U.S. auto sales and the profit contribution GM was likely to realize next year from its stake in GMAC because of the ongoing weakness in the housing market.

"We simply aren't inclined to look through the root cause as just 'noncash, non-recurring items,'" Nesvold said in a note for clients.

GMAC, in which GM retains a 49 percent stake, posted a $1.6 billion third-quarter loss triggered by a $2.6 billion loss at its Residential Capital LLC unit, the second-largest independent U.S. mortgage lender.

Henderson said U.S. housing market weakness was also partly responsible for weaker U.S. auto sales. Industry-wide sales are on track for the lowest annual total in almost a decade at about 16 million units, and seen at risk for dropping further in 2008.

"The recent erosion in U.S. market conditions will likely result in GM's performance during 2008 and possibly into 2009, being weaker than originally anticipated," Moody's Investors Service said in a statement, lowering its credit rating outlook for GM to "stable" from "positive."

ANALYSTS DIVIDED

Analysts were divided on the significance of GM's $39 billion charge, which pushed the automaker to the second largest quarterly loss in U.S. corporate history and almost offsets the profits GM made during its period of sustained growth between 1993 and 2004.

Some analysts noted an improvement in GM's global auto operations was at risk of being overshadowed by the charge. GM posted net income of $122 million from continuing auto operations after a loss of $455 million a year earlier.

GM also reported higher global vehicle sales than rival Toyota Motor Corp (7203.T) in the quarter.

Toyota, valued at about 10 times the market capitalization of GM, posted a quarterly profit of almost $4 billion earlier on Wednesday.

JP Morgan analyst Himanshu Patel said despite the "messy" third-quarter results, the performance of GM's auto business was "actually better than we expected."

In a note for clients, UBS analyst Rob Hinchliffe called the GM results "very ugly," but also noted that GM's auto business had done "modestly better" than expected.

"Today's results clearly highlight the magnitude of the challenge facing GM's recovery, though this is not surprising," he said. "Rather, we continue to believe that the recent UAW contract sets the stage for material cost savings."

Last month, GM clinched a four-year deal on wages and benefits for more than 73,000 workers represented by the UAW.

RECORD CHARGE IN FOCUS

GM had warned on Tuesday it would book the $39 billion charge against deferred tax assets. It was prompted by GM's cumulative losses over three years, the risk of weaker auto sales and the pressure facing GMAC in coming quarters.

The move wiped out all the deferred tax credits GM had accrued in the three years since it began taking charges to restructure its troubled U.S. operations.

Accounting rules would still allow GM to use those credits to offset future taxes if it returns to profitability, GM's Henderson told reporters. "Nothing has changed in terms of the economics of the business," he said.

GM's revenue fell 10 percent to $43.8 billion, a drop attributed to its spin-off of GMAC.

The cost to protect GM bonds against the risk of default jumped to about 600 basis points, meaning it costs $600,000 annually to insure $10 million of debt for five years.

GM shares were down $1.92, or 5.3 percent, at $34.24 in late trading on the New York Stock Exchange.