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Automaker lost $8.6 billion in '05

Red ink dripped from General Motors' ledger yesterday as the troubled automaker posted a larger-than-expected $8.6 billion loss for 2005, the biggest since the $23.5 billion deficit it posted in 1992.

"North America [operations] posted a loss almost twice our estimate," said Merrill Lynch & Co. analyst John Murphy.

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GM's stock price, which had already fallen about 36 percent since July, took another hit, dropping 80 cents, or 3.4 percent, to close at $23.05 on the New York Stock Exchange.

But despite the results, which included a $5.6 billion loss in North America for the year, GM reiterated its long-standing position that filing for bankruptcy is not a way out.

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"The company has a very strong balance of cash and adequate liquidity," spokesman Brian Akre said. "Chapter 11 reorganization would have many negative consequences, and we don't view it as a viable option."

In an interview with The Wall Street Journal published yesterday, President Bush said he might not support a bailout for GM or the equally ailing Ford Motor Co. George Magliano, automotive research director for Global Insight, said GM has the money to operate.

"Bankruptcy is in the minds of the media," Magliano said, voicing the opinion of many analysts.

In the fourth quarter, GM lost $4.8 billion, or $8.45 a share, on revenue of $51.2 billion.

The North American loss for the quarter totaled $1.5 billion. For the year, the company's losses totaled $8.6 billion, or $15.13 a share, on revenue of $192.6 billion, nearly $1 billion below 2004.

In a conference call with media and analysts, GM Chief Operating Officer Fritz Henderson said a sharp reduction in production of full-size sport utility vehicles was one of the leading factors for the losses.

Analysts agreed, but added that GM losses were higher than expected because it piled on many of its restructuring expenses for 2006.

"It's what most savvy Fortune 500 chairmen would do," said George Peterson, president of AutoPacific, an automotive research and consulting firm.

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"Everyone expected GM would look bad, and [GM Chairman Rick] Wagoner figured it couldn't look any worse so he pulled ahead bad news for 2006 into 2005," Peterson said.

Gerald Meyers, a visiting professor at the University of Michigan Ross School of Business (and former chairman of American Motors Corp.), even suggested that an earnings report as bad as GM's could have a benefit if it helps to persuade the United Auto Workers that the situation is dire.

"This is the time to look bad," Meyers explained.

GM plans to shut 12 plants and cut 30,000 jobs by 2008. It is talking with the United Auto Workers to find ways to accelerate the savings.

Despite the dismal 2005 results, analysts are holding out hope for 2006, when the fruits of cost-cutting efforts should start showing up on the balance sheet.

"Cost-cutting efforts, health care concessions and restructuring should help GM narrow North American losses in 2006, but they will remain substantial," Murphy said.

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"They might creep slightly above break-even in 2007, still with losses in North America, but smaller than those in 2006," Burnham Securities analyst Dave Healy said.

Henderson added that excluding special charges, GM expects "significant improvement in profitability in 2006 as well as in 2007 - at this point there is no choice."

Special items in the fourth quarter included one-time restructuring costs of $1.3 billion in North America and a $2.3 billion charge associated with Delphi Corp., GM's former parts division, which filed for bankruptcy last fall. GM said it expects to spend $3.6 billion to $12 billion on benefits promised to Delphi workers.

A concern, however, is that while GM's liquidity is strong with a $20 billion cash reserve, the junk status for its bonds means it can't look to the capital markets to finance its turnaround.

Jim Mateja writes for the Chicago Tribune. Tribune reporter Michael Oneal contributed to this article.


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