Skip the money saved from the labor contract with the UAW. Skip the new car introductions. Skip the fancy new alternative fuel future.
GM lost $39 billion last quarter.
In taxes.
That’s like getting a lump of coal in your stocking at Christmas.
Entirely avoidable, if only you’d been a good boy.
In an article published at, one mostly drooling over Bob Lutz, they point out that the $39 billion loss does not affect GM’s “cash position” because it was mostly a write-down of tax credits.
Say, they did what?
Corporate and tax accounting rules permit a company that loses money to “carry forward” the loss to succeeding years. In other words, if you lose $20 billion this year and make $20 billion next year, you can offset the loss against the profit and pay no tax.
This loss carry forward is considered an asset because it shields future profits from taxes. That is also considered something of an advantage when trying to turn a company around, because it means that profits can be reinvested in the recovery effort, without having to reserve for taxes on those profits.
GM just kissed off $39 billion in taxes – taxes they wouldn’t have had to pay once they made a profit, but taxes they now will be obliged to pay.
It isn’t that they owe back taxes. It’s that they could have avoided future taxes in that amount, but they blew it.
They blew it by taking too long to make a profit. The loss carry forwards generally expire at the end of ten years.
Writing that off makes GM less attractive as a take-over target, at least in theory. If a company making money buys a company with large tax loss credits, then the purchasing company can use those credits to offset its profits. It’s found money – effectively, money that the purchaser doesn’t have to come up with that functionally makes the acquired company pay for its own sale.
But no company with profits in that category has shown the least interest in GM, or is likely to do so.
But don’t be caught up in the dismissive spin this is getting in the Economist and others in the financial press. 
$39 billion is, at $5 billion each, almost eight new platforms that GM won’t be developing because they will be paying taxes on the money, should they ever make any profits.
$39 billion is about twice what the company claims they’ll be saving in future years by shedding the retired employee’s health care to a VEBA.
But GM just wrote that off without a whimper.
Which should tell you something.
Actually, two somethings.
First, it should tell you that GM doesn’t expect to make money for a very long time into the future. If it did, it would be feeling the pain from losing this golden tax shelter. It’s not. It’s not because that shelter really wasn’t real.
Which gets to the second thing: GM’s been lying on their books by carrying that $39 billion as an asset. Realistically, it was an asset only if they had a shot at making a profit. They not only didn’t make a profit, but writing it off now makes it clear that it was never realistic to expect to be able to use those credits before they expired.
But Lutz charms the Economist into buying the notion that GM’s turning it all around. Lutz is, according to the Economist, “sublimely confident” that the Volt will hit the market in 2010.
But, if it does, it seems that General Motors doesn’t plan to make a profit on it.

What do you think?
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