• search

General Motors raises 2005 loss by $2 billion

Written by: Staff
|

Datroit, Mar 17: General Motors said on Thursday (Mar 16, 2006) its 2005 loss was $2 billion deeper than previously reported due to charges related to factory job losses, its finance arm GMAC and the bankruptcy of a former subsidiary, Delphi.

The top US automaker's huge loss for last year, revised to total $10.6 billion, represented almost 85 per cent of its current market value as of close of trade on Thursday.

GM said it would delay filing its annual report with securities regulators because it had mistakenly accounted for cash flows from a mortgage subsidiary of GMAC called ResCap. It would also restate results from 2000 to 2004 due to ResCap.

Because of the delay in filing the report, it was impossible to know how the increased charges would affect the $16.8 billion in cash that GM's auto operations held at end-December.

Shares in GM, which lost more than half of their value in the past year, closed on Thursday at $22.22, having gained almost 16 per cent this month on signs that the company was making progress in its turnaround efforts.

In after-hours trade they slipped about 1 per cent to $22.

One analyst said it was encouraging that GM had raised its estimate of the cost of resolving problems at Delphi since that could suggest a resolution that would avoid a crippling strike.

GM said its mortgage-related accounting problem would not change reported net income, but could change its statement of cash flows at ResCap, GMAC and the parent company.

GM said it expected to file its annual report with the U.S.

Securities and Exchange Commission within the next two weeks.

MORE COSTS FOR JOB LOSSES Among the revisions, GM said it was taking a $1.7 billion charge as it shuts factories and lays off workers, up from an initial $1.4 billion for that sweeping restructuring.

The Detroit-based company, which remains the world's No. 1 automaker by revenue but ranks No. 8 by market value, has been slashing costs and cutting capacity as it adjusts to the loss of market share to Asian rivals in its core U.S. market.

The increased charge added $300 million in costs that GM said it expected to incur once its current contract with the United Auto Workers (UAW) union expired in September 2007.

Under the contract, idled factory workers are able to collect salary and benefits in a costly programme known as the JOBS bank. GM has not disclosed the number of workers in that programme, but union and analyst estimates put the total at more than 7,000.

GM said it was in talks with the UAW to reduce that number through a cost-saving programme of buyouts and early retirement.

GM said it was increasing the estimate of its exposure to Delphi to $5.5 billion before tax from an earlier $3.6 billion.

It said that its total exposure could be as high as $12 billion, but would probably be much lower if a three-way deal with Delphi and the UAW could be clinched.

Without such a deal, Delphi chief executive Steve Miller has said he would ask a federal bankruptcy judge to void the supplier's existing labour contracts, setting the stage for a strike that could cripple GM.

J.P. Morgan analyst Himanshu Patel said in a note last month that a work stoppage at Delphi could cause GM's U.S. operations to grind to a halt and cost it some $5 billion in cash a month.

For that reason, GM's recognition of a higher cost for Delphi could actually be read as a positive development, said Erich Merkle, of auto tracking firm IRN Inc.

''This sounds good,'' Merkle said. ''We've felt all along that GM would have to provide some kind of early retirement or other buyouts. Obviously, they're raising cash for something.'' When GM spun off Delphi in 1999 it guaranteed the pensions and benefits of the union workers.

GM said in its statement that a further revision to its estimate of Delphi-related expenses was possible before it filed its annual report, expected by the end of the month.

Reuters

For Daily Alerts
Get Instant News Updates
Enable
x
Notification Settings X
Time Settings
Done
Clear Notification X
Do you want to clear all the notifications from your inbox?
Settings X
X
We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Oneindia sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Oneindia website. However, you can change your cookie settings at any time. Learn more