G.M. Takes $39 Billion Charge on Tax Offset

General Motors said Tuesday that it would take a $39 billion noncash charge in the third quarter to remove net deferred tax assets from its books.

G.M. said the charge, which affects the automaker’s businesses in the United States, Germany and Canada, would have no impact on operations and would not interfere with efforts to restructure.

But analysts said the step reflected the likelihood that G.M. would not earn significant profits on its automotive or finance operations in the near future. The deferred assets could have been used to offset taxes on future profits.

“What this says right now is that, at least according to an accounting interpretation, the outlook for earnings in their U.S. business has diminished from where it was,” said John Casesa, an industry analyst with the Casesa Shapiro Group.

The charge is among the largest by the auto company and is the latest in a series of accounting steps at G.M. The company has revised its financial results often over the last few years as it has worked through a restructuring that began in 2005.

Last week, GMAC Financial Services, the company’s financing arm, said it had lost $1.6 billion in the third quarter, mainly because of a deep loss on its mortgage business. G.M. owns 49 percent of GMAC, after selling a controlling interest to Cerberus Capital Management last year.

The loss at GMAC had been expected to result in a loss at G.M. when the automaker reports results Wednesday. With the charge, G.M.’s third-quarter results are likely to show significant red ink, at least on paper.

G.M. said it was taking the charge in the third quarter to comply with federal accounting standards.

As it continues to revise its financial results, G.M. said it expected to lose money on an adjusted basis for the period covering 2004 to 2007, when the deferred tax assets were accumulated. Notably, G.M. lost $12.6 billion in 2005, its largest loss since the early 1990s, and an additional $2 billion in 2006.

Even with the recent pattern of losses, G.M. said it had previously concluded that it would not have to take a charge for several reasons.

First, it said the losses were due primarily to the charges it took for a restructuring plan in North America, where it plans to eliminate 30,000 jobs and close or reduce operations of a dozen plants through 2008.

G.M. also said that it had expected to have “continued strong earnings” at G.M.A.C. and in its North American automotive business.

But auto sales have been weakening. Analysts and auto company executives expect industry sales this year to be about 16 million vehicles, the weakest since 1998. Lately, executives have been forecasting that sales next year could fall below 16 million vehicles.

Moreover, the mortgage industry crisis is not showing signs of ending, meaning G.M.A.C.’s results are likely to be affected into 2008.

G.M.’s chief financial officer, Frederick A. Henderson, said the charge would not affect cash available for G.M., nor would it change the company’s long-term outlook. G.M. also would not be precluded from using tax-loss carry-forwards in the future, which would reduce the company’s tax bill.

He said the company believed that its new vehicle introductions, as well as savings from a new contract with the United Automobile Workers union, “will significantly improve G.M.’s competitive position in the U.S. and better position the company to utilize tax benefits in the U.S. and Canada in the future.”

Mr. Casesa said he did not think investors would penalize G.M. “This makes analysts go gray,” he said of the charge, “but the market looks through this. You have to understand that it does not in any way affect the fundamental progress they are making to become more competitive.”

Accounting experts say that if G.M.’s profitability improves, it can reverse the action. The valuation allowance is not an indication of accounting problems at the automaker, despite its spate of revisions in recent years, said Charles Mulford, a professor of accounting at the Georgia Institute of Technology.

“I think they’ve done a decent job of coming to grips with their accounting problems in recent quarters,” Professor Mulford said.

source:www.nytimes.com