GM take $39 bil non-cash charge for Deferred Tax Valuation Allowance

--General Motors Corp. (NYSE: GM) today announced it will record a net non-cash charge of $39 billion for the third quarter of 2007 related to establishing a valuation allowance against its deferred tax assets (DTAs) in the U.S., Canada and Germany. --In accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, GM has evaluated its DTAs quarterly to determine if valuation allowances were required. As previously disclosed in GM's 2006 Form 10-K, GM had determined in prior periods that a valuation allowance was not necessary for its DTAs in the U.S., Canada or Germany based on several factors, including the degree to which the company's three-year historical cumulative losses were attributable to special items or charges, several of which were incurred as a result of actions to improve future profitability; the long duration of its deferred tax assets; and the expectation of continued strong earnings at GMAC Financial Services and improved earnings in GM North America. --SFAS No. 109 guidelines require that a valuation allowance should now be established due to more recent events and developments during the 2007 third quarter. A significant negative factor was the company's three-year historical cumulative loss in the third quarter of 2007 in the U.S., Canada and Germany on an adjusted basis. Another significant factor was the ongoing weakness at GMAC Financial Services related to its Residential Capital, LLC (ResCap) mortgage business, including substantial U.S. losses incurred in 2007. Finally, the company faces more challenging near-term automotive market conditions in the U.S. and Germany. --DTAs from 10-k 2006 As of December 31, 2006, we had approximately $34.8 billion in U.S. net deferred tax assets (DTAs). These DTAs include approximately $5.7 billion net operating loss carryovers that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. In December 2006 we increased our U.S. DTAs by $10.2 billion as a result of recognizing the funded status of our benefit plans on our 2006 consolidated balance sheet pursuant to the adoption of SFAS No. 158. Many of these DTAs will expire if they are not utilized within certain time periods. At this time, we consider it more likely than not that we will have U.S. taxable income in the future that will allow us to realize these DTAs. However, it is possible that some or all of these DTAs could ultimately expire unused, especially if our North America restructuring initiatives are not successful. While the closing of the GMAC Transaction in November 2006 did not directly affect GM’s ability to realize our DTAs, a significant portion of GMAC’s U.S. pre-tax income will no longer be available to GM. Therefore, unless we are able to generate sufficient U.S. taxable income from our automotive operations, a substantial valuation allowance to reduce our U.S. DTAs may be required, which would materially increase our expenses in the period it is taken and materially adversely affect our results of operations and statement of financial condition.