Mire grows deeper at GM

DETROIT - General Motors says its 2005 loss was US$2 billion ($3.14 billion) deeper than previously reported because of charges related to factory job losses, its finance arm GMAC and the bankruptcy of former subsidiary Delphi Corp.

GM also said yesterday that 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 will also restate results from 2000 to 2004 due to ResCap.

The loss for 2005, revised to total US$10.6 billion, represented almost 85 per cent of the current market value of the carmaker at the close of trade yesterday.

At US$18.69 per share, the loss was also just shy of GM's closing price at the end of December after a year-long slide that cut the stock's value by more than half.

"These disclosures don't look very good when investors are already skittish about what's going on in the automotive industry," said John Casesa, a managing partner in Casesa Strategic Advisers, an independent consulting firm based in New York.

"You hate to discover a leak in your basement when you're trying to sell your house."

The restatements and delayed report come as chief executive Rick Wagoner is seeking to restore investor confidence after GM shares fell 52 per cent last year, the most of any company in the Dow Jones Industrial Average.

Wagoner has said he is trying to resolve issues related to worker costs for the bankruptcy of Delphi, its biggest supplier, an SEC investigation and to focus on selling more vehicles.

Shares in GM closed yesterday at US$22.22 and have gained almost 16 per cent this month on signs that the company was making progress in its turnaround efforts. In after-hours trade the stock slipped about 1 per cent to US$22.

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

Among the revisions, GM said it was taking a US$1.7 billion charge as it shuts factories and lays off workers, up from a US$1.4 billion provision.

The Detroit-based company, which remains the world's No 1 car-maker 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.

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

Under the current union contract, idled factory workers are able to collect salary and benefits in a costly programme known as the "Jobs Bank". GM has not said how many workers are in the programme, but analysts put the total at more than 7000.

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

GM also said it was increasing the estimate of its exposure to former subsidiary Delphi to US$5.5 billion before taxes from an earlier estimate of US$3.6 billion.

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

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

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

"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 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, BLOOMBERG