GM shares drop after adding $2 billion to reported 2005 loss

DETROIT (AP) _ General Motors Corp. shares sank more than 3 percent Friday after the world's largest automaker increased its previously-reported loss for 2005 by $2 billion to reflect fresh estimates

Friday, March 17th 2006, 11:08 am

By: News On 6

DETROIT (AP) _ General Motors Corp. shares sank more than 3 percent Friday after the world's largest automaker increased its previously-reported loss for 2005 by $2 billion to reflect fresh estimates of the costs of bailing out its former parts-making unit and revamping its loss-riddled North American operations.

GM said after the market closed Thursday that it now estimates it lost about $10.6 billion last year compared with its preliminary report of a loss of $8.6 billion.

GM also said it was delaying filing its annual report with the Securities and Exchange Commission for up to two weeks because of accounting problems related to the way the company classified certain transactions at ResCap, the residential mortgage subsidiary of its finance arm, General Motors Acceptance Corp. The company said the issues could affect earnings from prior years.

The news comes as GM is trying to sell GMAC. On Friday, Moody's Investors Service warned that it could downgrade the long-term credit ratings of GM, GMAC and ResCap.

``Moody's believes that negative developments such as the filing delay could slow the progress of the sale process,'' the ratings agency said.

Its shares fell 74 cents, or 3.3 percent, to $21.48 in late morning trading Friday on the New York Stock Exchange, where they have traded as low as $18.33 over the past 52 weeks. The latest decline trimmed $400 million from GM's market capitalization to about $12.2 billion.

The automaker expects to increase the charge for its exposure relating to auto parts supplier Delphi Corp.'s Chapter 11 bankruptcy case to $3.6 billion from the previous estimate of $2.3 billion. Delphi once was part of GM.

Additionally, GM will boost its North American restructuring charge to $1.7 billion from the previously reported $1.3 billion to cover higher expected costs for plants the company aims to close by the end of 2008.

GM also will recognize a previously reported goodwill impairment charge of $439 million at GMAC.

The previous charge included cash payments that would be made to affected employees during the current labor agreement, while the revised charge considers GM's estimate of costs it expects to pay after the contract expires in September 2007.

The biggest portion of the change, $1.3 billion for costs related to Delphi, was increased after GM ``refined the range'' of its potential liability for Delphi employees' compensation, GM spokesman Jerry Dubrowski said.

``We've got better information'' than was available when Delphi filed for bankruptcy Oct. 8, he said.

The change ``reflects developments in the discussions with Delphi'' and the United Auto Workers union on a comprehensive agreement, the company said in a statement.

Detroit-based GM is attempting to negotiate a revised labor agreement with Delphi and the UAW to help Delphi's hourly workers. The Troy-based supplier has asked the UAW and other unions to agree to pay cuts of more than 60 percent for its 34,000 unionized hourly workers. The unions have refused.

GM has entered that fray because it relies heavily on Delphi for parts and says it could be contractually liable for up to $12 billion in benefits promised to Delphi workers. As part of its 1999 spinoff of Delphi, GM guaranteed some pension and post-retirement costs in the event of bankruptcy by the supplier.

Delphi is threatening to ask a bankruptcy court judge to cancel its labor contracts on March 31 if it hasn't reached a deal to cut its labor costs. If the judge cancels Delphi's contracts, the UAW has said it will strike.

Another Delphi union, the IUE-CWA division of the Communications Workers, has been holding strike-authorization votes at its locals. Workers from plants in Alabama, Mississippi and Ohio have agreed to strike if necessary.

Dubrowski declined to comment on the status of GM's negotiations with Delphi and the UAW.

The goodwill impairment charge relates mainly to GMAC's commercial finance operating segment. Previously, GM reported but did not recognize these charges in its 2005 financial statements because the goodwill was deemed recoverable. GM decided to recognize the $439 million charge for the fourth quarter of 2005 after an internal review of accounting standards and consultation with its outside auditors.

The 2005 loss translates to $18.69 a share. Previously, GM said it lost $15.13 a share last year.

GM said it also would report restated earnings from 2001 through the first quarter if 2005 to correct supplier credits that had been booked in the wrong period and other errors. The automaker originally announced the restatement plans Nov. 10, driving GM shares to their lowest level in 13 years.

Himanshu Patel, an analyst with JPMorgan Chase & Co., said at the time that the market had overreacted, and that GM's restatement didn't indicate a broad pattern of deceitful accounting.

The changes announced Thursday involve bookkeeping, not GM's embattled manufacturing operations. ``These are accounting issues,'' Dubrowski said.

GM sold 9.2 million vehicles worldwide in 2005, the second-largest volume in the company's history. North American losses wiped out sales gains in Europe, Asia, Latin America, Africa and the Middle East; GM's worldwide market share slipped to 14.2 percent from 14.4 percent in 2004.

The automaker's U.S. sales increased 1 percent in the first two months of this year, although GM earlier Thursday announced a cash incentive program for vehicles that have gone unsold for as long as four months.