GM posts huge $39 billion net loss

This is from MSNBC News:

DETROIT - General Motors Corp. posted a company record $39 billion loss Wednesday for the third quarter, as a charge involving unused tax credits brought an abrupt end to a string of three profitable quarters for the nation’s largest automaker.

The loss was one of the biggest quarterly corporate deficits ever. GM’s shares down more than 5 percent in afternoon trading. Standard & Poor’s downgraded GM shares from hold to sell, and said GM’s near-term outlook has worsened significantly in part due to reduced U.S. sales.

GM attributed most of the third-quarter loss to a $38.6 billion noncash charge for establishing a valuation allowance against accumulated deferred tax credits in the U.S., Canada and Germany. Accounting rules require that companies that expect to keep losing money cannot keep carrying deferred tax credits indefinitely and must write down their value.

GM also reported a loss of $757 million from its 49 percent stake in GMAC Financial Services, due largely to losses at ResCap, GMAC’s mortgage arm.

It was the second-worst quarterly net loss in U.S. corporate history under generally accepted accounting principles, said Howard Silverblatt, senior index analyst for Standard & Poor’s. The loss was exceeded only by AOL Time Warner’s $44.9 billion, or $10.04 per share loss, in the fourth quarter of 2002, he said.

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What might be considered more troubling for GM is continuing losses in its home market, North America, where it reported a net loss of $247 million without the charge for the latest quarter. That compares with a net loss of $667 million in the year-ago period.

The company reported an overall loss of $1.6 billion, or $2.80 per share, excluding special items. In addition to the accounting change, special items included a $3.5 billion after-tax gain on the $5.4 billion sale of Allison Transmission in August.

If I'm understanding this right, GM took some tax credits which required the company to post a profit in order to keep the credit. But since GM has been losing money, the company couldn't keep these tax credits indefinitely, and had to write down their value. So GM had to post a huge accounting loss here. Toss in the $757 million that GM lost through its GMAC Financing arm due to the subprime mortgage collapse, and the $247 million in the North American car market, and it is not looking too good for General Motors.