GM to take $39 billion charge

General Motors Corp said on Tuesday it would book a $39 billion non-cash charge in the third quarter, reflecting the risk of a slower turnaround that could keep it from claiming expected future tax credits in key markets.

The company, which will report third-quarter results on Wednesday, said the charge was triggered by the cumulative loss it had posted over the past three years in the United States, Canada and Germany through the most recent quarter.

But GM also cited ongoing weakness at finance company and former subsidiary GMAC and a more challenging market for auto sales in the United States and Germany in taking the charge.

The $39 billion charge looked certain to dwarf all other items in GM's quarterly results. For comparison, during the automaker's last period of sustained growth -- between 1993 and 2004 -- GM reported a cumulative profit of $43 billion.

The charge by GM also comes at a time when analysts have become increasingly concerned about the interlocking outlook for both the U.S. housing market and auto sales in 2008.

Companies found to have overpaid past taxes can keep credit on their balance sheets to offset future tax liabilities.

But U.S. accounting rules force them to take a charge against these deferred tax assets if it is deemed likelier that what they booked will not be available to offset future taxes.

The standards put a heavy weight on recent performance in determining whether companies must take charges -- or valuation allowances -- against these recorded assets.

GM's charge was triggered largely because it has been three years since it began taking charges to restructure its troubled U.S. operations. The move wipes out all the deferred tax credits it accrued over that time.

Yet accounting rules would still allow GM to claim those credits if it bounces back to profitability and can use the amounts to offset future taxes, a GM spokeswoman said.

LONG-TERM OUTLOOK UNCHANGED

GM Chief Financial Officer Fritz Henderson said in a statement that the charges announced on the eve of the company's third-quarter results did not change its more optimistic long-term, automotive financial outlook.

Shares of GM fell almost 3 percent in after-hours trade on Tuesday. They are down 17 percent since mid-October as investor attention shifted away from GM's cost-saving labor deal with its main union last month and toward its other challenges.

GM clinched a four-year deal on wages and benefits for more than 73,000 workers represented by the United Auto Workers, part of its bid to return to profitability in its home market after combined losses of $12.4 billion in the past two years.

As a result of that deal, GM expects to cut its cost for hourly production wages and benefits to $10 billion this year, just over half of what it had spent on factory labor in 2003, the last time it negotiated a UAW contract.

GM continues to believe that its new product introductions, combined with the new GM-UAW labor agreement, once fully implemented, will significantly improve GM's competitive position in the (United States), Henderson said.

A return to profitability would better position the company to utilize tax benefits in the U.S. and Canada in the future, he said.

U.S. auto sales are on track for their lowest industry-wide total in almost a decade at about 16 million units, and executives at GM rivals Ford Motor Co and Chrysler LLC have suggested the market could slide further in 2008.

For its part, GMAC, in which GM owns 49 percent, posted a $1.6 billion third-quarter loss last week triggered by a fourth consecutive quarter of losses at its Residential Capital LLC unit, the second-largest independent U.S. mortgage lender.

David Healy, an analyst with Burnham Securities, said the charge highlighted the tough outlook for ResCap in particular.

That, as far as I can see, is the only thing that has changed in the outlook, Healy said, whereas the weaker market for auto sales, by contrast, has been visible for a while.

The weaker housing market that has rocked ResCap has also hurt U.S. vehicle sales by crimping consumer demand in once-booming states like California and Florida.

GM's U.S. sales were down almost 6 percent in the year-to-date through October, although that slump has been offset by strong growth in Asia and Europe.

Analysts, on average, had been expecting GM to post a third-quarter loss of 36 cents per share, excluding one-time items, according to Reuters Estimates.