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GM Reports Record Losses

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By DEE-ANN DURBIN, The Associated Press

Published: February 13, 2008

DETROIT - For all the good in GM's 2007 results - near-record worldwide sales, and reductions in labor costs and retiree health obligations - there is no getting around the $38.7 billion in red ink.

The largest annual loss in the history of the auto industry signals that even with a garage full of hot vehicles and historic new labor contract, GM has little hope of making a profit again before 2010 as the weak U.S. economy and competition eat away at its gains.

GM reported the record loss Tuesday and promptly offered a new round of buyouts to 74,000 U.S. hourly workers in hopes of replacing some of them with lower-paid employees.

Chairman and chief executive Rick Wagoner said GM made significant progress last year, reducing structural costs in North America, negotiating a new contract with the United Auto Workers, and expanding aggressively in emerging markets such as Latin America and Asia.

The company managed to hold onto its title as the world's largest automaker last year - selling just 3,000 more cars than Toyota - and was profitable in every region outside North America. It introduced hit products including the Chevrolet Malibu and a trio of new crossovers.

But GM was hit by continuing losses in its home region, obligations to its former parts division Delphi Corp. and troubles at its partly owned GMAC Financial Services, which is reeling from the U.S. mortgage crisis.

"We're pleased with the positive improvement trend in our automotive results, especially given the challenging conditions in important markets like the U.S. and Germany, but we have more work to do to achieve acceptable profitability and positive cash flow," Wagoner said in a statement.

In addition to the weak U.S. economy and high commodity prices, GM's decision to reduce low-profit sales to daily rental companies by 110,000 in 2007 hurt U.S. sales, he said.

The company doesn't expect significant earnings until at least 2010, as it reduces its work force and labor costs, and transfers retiree health care costs to a new UAW-run trust.

"We need to get all the structural costs down," Chief Financial Officer Fritz Henderson said. "We need to step on the gas in terms of how we're performing in the market as well."

GM wouldn't say how many workers it hopes to shed or how much it expects the buyouts to cost, but under its new contract with the UAW, it will be able to replace up to 16,000 workers doing nonassembly jobs. The new employees will be paid half the old wage of $28 per hour.

Under the offer, retirement-eligible workers could get between $45,000 and $62,500 as an incentive to retire with full pension and health benefits. Other workers will have the option to retire early or take up to $140,000 to leave with no pension or health care.

In the United States, workers represented by the UAW - or about 98 percent of GM's U.S. hourly workers - will be eligible for the buyouts, GM spokesman Dan Flores said.

Shares in GM fell 52 cents to close at $26.60.

The huge annual loss was mostly due to a $39 billion third-quarter charge for unused tax credits. It topped the company's previous annual loss record, when it lost $23.4 billion in 1992 because of a change in health care accounting, according to Standard & Poor's Compustat.

GM's results also were hobbled by its 49 percent stake in GMAC Financial Services, which lost $2.3 billion last year due to its ResCap mortgage division. GM attributed a $1.1 billion loss to GMAC.

Excluding the tax charge and other special items, GM lost $23 million, or 4 cents per share, for the year, compared with a net income of $2.2 billion in 2006 - easily beating Wall Street's expectations. Analysts polled by Thomson Financial expected GM to post a full-year loss of 95 cents per share.

GM reported $181 billion in revenue for the year, down from $206 billion in 2006.

The company sold 9,369,524 vehicles worldwide, up 3 percent from the year before.

For the fourth quarter, GM posted a loss of $722 million, or $1.28 per share, compared with a net income of $950 million in the year-ago quarter. Fourth-quarter charges included $622 million to Delphi for its restructuring efforts, and a gain of $1.6 billion because of tax credits related to GM's pension liabilities and the sale of its Allison Transmission unit.

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