10-K 1 k03376e10vk.htm ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 2005 e10vk
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
Form 10-K
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2005
OR
 
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from           to
Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
     
STATE OF DELAWARE   38-0572515
(State or other jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)
 
300 Renaissance Center, Detroit, Michigan   48265-3000
(Address of Principal Executive Offices)   (Zip Code)
Registrant’s telephone number, including area code (313) 556-5000
Securities registered pursuant to Section 12(b) of the Act:
     
    Name of Each Exchange on
Title of Each Class   Which Registered
     
Common, $12/3 par value
  New York Stock Exchange, Inc.
Note: The $12/3 par value common stock of the Registrant is also listed for trading on the following exchanges:
         
    Chicago Stock Exchange, Inc.    Chicago, Illinois
    Pacific Exchange, Inc.    San Francisco, California
    Philadelphia Stock Exchange, Inc.    Philadelphia, Pennsylvania
    Frankfurter Wertpapierborse   Frankfurt am Main, Germany
    Borse Düsseldorf   Düsseldorf, Germany
    Bourse de Bruxelles   Brussels, Belgium
    Euronext Paris   Paris, France
    The London Stock Exchange   London, England
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes þ         No o
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes o         No þ
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes þ         No o
     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    Yes þ         No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
     Large accelerated filer    þ         Accelerated filer    o         Non-accelerated filer    o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o         No þ
     As of June 30, 2005, the aggregate market value of General Motors $12/3 par value common stock held by nonaffiliates of GM was approximately $19.2 billion. The closing price on June 30, 2005 as reported on the New York Stock Exchange was $34.00 per share. As of June 30, 2005, the number of shares outstanding of GM $12/3 par value common stock was 565,503,422 shares.
     Documents incorporated by reference are as follows:
     
    Part and Item Number of Form 10-K
Document   into Which Incorporated
     
General Motors Notice of Annual Meeting of Stockholders and Proxy Statement for the Annual Meeting of Stockholders to be held June 6, 2006
  Part III, Items 10 through 14
General Motors Acceptance Corporation Annual Report on Form 10-K
for the year ended December 31, 2005
  Part I, Item 1; Part II, Items 6, 7, and 8
 
 


 

GENERAL MOTORS CORPORATION
INDEX
             
        Page
         
 PART I
   Business     I-1  
   Risk Factors     I-12  
   Unresolved Staff Comments     I-27  
   Properties     I-27  
   Legal Proceedings     I-27  
   Submission of Matters to a Vote of Security Holders     I-34  
   Executive Officers of the Registrant     I-35  
 
 PART II
   Market for the Registrant’s Common Equity and Related Stockholder Matters     II-1  
   Selected Financial Data     II-3  
   Management’s Discussion and Analysis of Financial Condition and Results of Operations     II-5  
   Quantitative and Qualitative Disclosures About Market Risk     II-47  
   Financial Statements and Supplementary Data     II-53  
     Consolidated Statements of Income     II-53  
     Consolidated Balance Sheets     II-55  
     Consolidated Statements of Cash Flows     II-57  
     Consolidated Statements of Stockholders’ Equity     II-59  
     Notes to Consolidated Financial Statements     II-60  
   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     II-132  
   Controls and Procedures     II-132  
   Other Information     II-133  
 
 PART III
   Code of Ethics for Senior Executives     III-1  
   Executive Compensation     III-1  
   Security Ownership of Certain Beneficial Owners and Management     III-1  
   Certain Relationships and Related Transactions     III-1  
   Principal Accountant Fees and Services     III-1  
 
 PART IV
   Exhibits and Financial Statement Schedule     IV-1  
 Signatures     IV-4  
 Bylaws of General Motors Corporation
 Agreement, dated as of October 22, 2001
 General Motors Company Vehicle Operations
 Compensation Statement for G.R. Wagoner, Jr.
 Compensation Statement for John M. Devine
 Compensation Statement for Robert A. Lutz
 Compensation Statement for G.L. Cowger
 Compensation Statement for Thomas A. Gottschalk
 GM Supplemental Executive Retirement Plan
 General Motors Benefit Equalization Plan for Salaried Employees
 Description of Executive and Board Compensation Reductions
 Computation of Ratios of Earnings to Fixed Charges
 General Motors Acceptance Corp Annual Report
 Subsidiaries of the Registrant
 Consent of Independent Registered Public Accounting Firm
 Section 302 Certification of Chief Executive Officer
 Section 302 Certification of Chief Financial Officer
 Section 906 Certification of Chief Executive Officer
 Section 906 Certification of Chief Financial Officer


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PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
THE CORPORATION
      General Motors Corporation, incorporated in 1916 under the laws of the State of Delaware, is hereinafter sometimes referred to as “we,” the “Registrant,” the “Corporation,” “General Motors,” or “GM.”
Item 1. Business
General
      GM is primarily engaged in automotive production and marketing, and financing and insurance operations. GM designs, manufactures, and markets vehicles worldwide, having its largest operating presence in North America. GM’s finance and insurance operations are principally those of General Motors Acceptance Corporation (GMAC), a wholly owned subsidiary of GM, which provides a broad range of financial services, including automotive finance and mortgage products and services.
      The following information is incorporated herein by reference to the indicated pages in Part II:
     
Item   Page(s)
     
Production Volumes
  II-12 through II-17
Employment and Payrolls
  II-39
Note 26 to the GM Consolidated Financial Statements
(Segment Reporting)
  II-120 through II-123
      GM presents separate supplemental financial information for its reportable operating segments:
  •  Automotive and Other Operations (Auto & Other); and
 
  •  Financing and Insurance Operations (FIO).
      GM’s Auto & Other reportable operating segment consists of:
  •  GM’s four automotive regions: GM North America (GMNA), GM Europe (GME), GM Latin America/ Africa/ Mid-East (GMLAAM), and GM Asia Pacific (GMAP), which constitute GM Automotive (GMA); and
 
  •  Other, which includes the elimination of intersegment transactions, certain non-segment specific revenues and expenditures, including legacy costs related to postretirement benefits for certain Delphi Corporation (Delphi) and other retirees, and certain corporate activities.
GM Automotive and Other Operations
      GMNA primarily meets the demands of customers inside North America with vehicles designed, manufactured, and/or marketed under the following nameplates:
         
• Chevrolet
  • Buick   • Saab
• Pontiac
  • Cadillac   • Hummer
• GMC
  • Saturn    
      GME, GMLAAM, and GMAP primarily meet the demands of customers outside North America with vehicles designed, manufactured, and/or marketed under the following nameplates:
         
• Opel
  • Saab   • GMC
• Vauxhall
  • Buick   • Cadillac
• Holden
  • Chevrolet   • Daewoo

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      As of December 31, 2005, GM also has equity ownership directly or indirectly through various regional subsidiaries in New United Motor Manufacturing, Inc. (NUMMI), Suzuki Motor Corporation (Suzuki), Isuzu Motors Ltd., Shanghai General Motors Co., Ltd. (SGM), SAIC-GM-Wuling Automobile Company Ltd., and CAMI Automotive Inc. (CAMI). These investees design, manufacture and market vehicles under the following nameplates:
         
• Pontiac
  • Wuling   • Saab
• Suzuki
  • Daewoo   • Chevrolet
• Isuzu
  • Holden    
• Buick
  • Cadillac    
GM Financing and Insurance Operations
      GM’s FIO reportable operating segment consists of GMAC and Other Financing, which includes financing entities that are not consolidated by GMAC. GMAC provides a broad range of financial services, including consumer vehicle financing, automotive dealership and other commercial financing, residential and commercial mortgage services, automobile service contracts, personal automobile insurance coverage and selected commercial insurance coverage. See related business discussion in GMAC’s Form 10-K, Item 1, which is incorporated herein by reference. GMAC’s Form 10-K is filed separately with the Securities and Exchange Commission (SEC).
Hughes Split-Off
      GM’s businesses included those of Hughes Electronics Corporation (Hughes) prior to the split-off of that business from GM on December 22, 2003. Hughes’ activities included digital entertainment, information and communication services, and satellite-based private business networks.
Vehicle Unit Sales
      Production volume of GM passenger cars and trucks during the three years ended December 31, 2005 is summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section below.

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      Total industry new motor vehicle (passenger cars, trucks and buses) unit sales of domestic and foreign makes and GM’s competitive position during the years ended December 31, 2005, 2004, and 2003 were as follows:
                                                                             
    Vehicle Unit Sales(1)
    Years Ended December 31,
     
    2005   2004   2003
             
        GM as       GM as       GM as
        a % of       a % of       a % of
    Industry   GM   Industry   Industry   GM   Industry   Industry   GM   Industry
                                     
    (Units in thousands)
United States
                                                                       
 
Cars
                                                                       
   
Small
    2,370       490       20.7%       2,256       456       20.2%       2,339       487       20.8%  
   
Mid-size
    3,740       1,007       26.9%       3,714       1,190       32.0%       3,681       1,240       33.7%  
   
Sport
    424       58       13.6%       403       59       14.6%       420       32       7.5%  
   
Luxury
    1,208       197       16.3%       1,190       180       15.2%       1,197       202       16.9%  
                                                       
 
Total cars
    7,742       1,752       22.6%       7,563       1,885       24.9%       7,637       1,961       25.7%  
 
Trucks
                                                                       
   
Pickups
    3,201       1,163       36.3%       3,198       1,133       35.4%       3,115       1,151       37.0%  
   
Vans
    1,468       328       22.4%       1,456       313       21.5%       1,398       339       24.3%  
   
Utilities
    4,585       1,212       26.4%       4,693       1,324       28.2%       4,523       1,264       27.9%  
   
Medium Duty
    459       63       13.8%       392       52       13.2%       297       42       14.0%  
                                                       
 
Total trucks
    9,713       2,766       28.5%       9,739       2,822       29.0%       9,333       2,796       30.0%  
                                                       
 
Total United States
    17,455       4,518       25.9%       17,302       4,707       27.2%       16,970       4,757       28.0%  
Canada, Mexico, and Other
    3,087       728       23.6%       2,980       705       23.6%       2,872       683       23.8%  
                                                       
 
Total GMNA
    20,542       5,246       25.5%       20,282       5,412       26.7%       19,842       5,440       27.4%  
 
GME
    20,970       1,982       9.5%       20,763       1,956       9.4%       19,588       1,819       9.3%  
 
GMLAAM
    4,980       881       17.7%       4,225       738       17.5%       3,626       584       16.1%  
 
GMAP
    18,240       1,064       5.8%       17,156       887       5.2%       15,919       773       4.9%  
                                                       
Total Worldwide
    64,732       9,173       14.2%       62,426       8,993       14.4%       58,975       8,616       14.6%  
 
(1)  GM vehicle unit sales primarily represent vehicles manufactured by GM or manufactured by GM’s investees and sold either under a GM nameplate or through a GM-owned distribution network. Consistent with industry practice, vehicle unit sales information includes estimates of sales in certain countries where public reporting is not legally required or otherwise available on a consistent basis.
Fleet Sales and Deliveries
      The U.S. sales and market share data provided above cover both retail and fleet sales and deliveries. GM’s U.S. fleet sales are comprised primarily of sales and deliveries to daily rental car companies, as well as commercial fleet and government customers. Certain U.S. fleet transactions, especially daily rental, are less profitable than U.S. retail sales.

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      The table below shows our fleet sales in the United States, and the amount of those sales as a percentage of our total U.S. car and truck vehicle unit sales for the last three years. The daily rental category principally consists of vehicle transactions that GM guarantees to repurchase from customers at contractually agreed upon values. See Note 1 to the Consolidated Financial Statements for a description of our accounting treatment for U.S. fleet transactions and our revenue recognition policies.
                             
    GM U.S. Fleet Sales
    Years Ended December 31,
     
    2005   2004   2003
             
    (Units in thousands)
Daily rental units
    780       801       713  
Other fleet units
    388       353       288  
                   
 
Total fleet units
    1,168       1,154       1,001  
                   
U.S. retail/ fleet mix
                       
 
U.S. fleet sales as % of total sales
                       
   
Cars
    36.8 %     36.7 %     31.7 %
   
Trucks
    19.0 %     16.4 %     13.6 %
   
Total
    25.9 %     24.5 %     21.0 %
Product Pricing
      GM, through the “Total Value Promise,” announced in January 2006 its intent to reduce the use and amount of incentives in GMNA as a stimulant to sales and that it would instead reduce the manufacturers’ suggested retail price on many GM vehicles and, on that basis, emphasize the value GM offers to consumers. Historically, GM has used a number of methods to promote its products, including the use of incentives. GM uses retail and fleet incentives, primarily through rebates, finance incentives and special lease programs. In addition, GM uses dealer incentives to promote its vehicles. The level of incentives is dependent in large part upon the level of competition in the markets in which GM operates and the level of demand for GM’s products.
Seasonal Nature and Cyclical Nature of Business
      In the automotive business, there are retail sales fluctuations of a seasonal nature, and production varies from month to month. Certain changeovers occur throughout the year for reasons such as new market entries and vehicle model changeovers; however, the changeover period related to the annual new model introduction has traditionally been concentrated in the third quarter of each year. Production is typically lower during the third quarter due to these annual product changeovers and the fact that annual plant shutdowns are planned during this time to facilitate product changes. For this reason, lower production rates in the third quarter cause operating results to be, in general, less favorable than those in the other three quarters of the year. The magnitude of the changeover needed to commence production of new models depends on, for example, design modifications related to more fuel-efficient vehicle packaging, stricter government standards for safety and emission controls, and consumer-oriented improvements in performance, comfort, convenience, and style.
      The market for automobiles is cyclical and dependent upon general economic conditions and consumer spending. A deterioration in general economic conditions may cause consumers to defer purchasing or leasing new vehicles or opt for used vehicles instead, resulting in a decrease in the total number of new cars and light trucks sold. Fluctuations in the price of fuel also affect consumer preferences and spending.

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Relationships with Dealers
      We market our vehicles and provide financing for those products through a network of independent retail dealers and distributors in the United States, Canada, and Mexico, and through distributors and dealers overseas. At December 31, 2005, there were approximately 7,350 GM vehicle dealers in the United States, 750 in Canada, and 300 in Mexico. Additionally, there were a total of approximately 15,600 distribution outlets overseas for vehicles manufactured by GM and its affiliates. These outlets include distributors, dealers and authorized sales, service, and parts outlets.
      GM dealers operated the following number of GM dealerships in the following locations:
                 
    As of December 31,
     
    2005   2004
         
GMNA
    8,440       8,661  
GME
    10,200       9,522  
GMLAAM
    2,053       1,679  
GMAP
    3,329       2,788  
             
Total Worldwide
    24,022       22,650  
             
      In North America, GM enters into contracts with each authorized dealer agreeing to sell the dealer one or more specified product lines at wholesale prices and granting the dealer the right to sell those vehicles from a GM approved location to retail customers. GM dealers often offer more than one GM brand of vehicle in a single dealership. GM’s current dealer network plans focus primarily on combining only certain GM brands within dealerships. In some instances, an authorized GM dealer may also be an authorized dealer for another manufacturer’s vehicles. Authorized GM dealers offer parts, accessories, service, and repairs for GM vehicles in the product lines that they sell, usually using genuine GM vehicle accessories and service parts. GM dealers are authorized to service GM vehicles under GM’s limited warranty, and those repairs are to be made only with genuine GM parts. In addition, GM dealers generally provide their customers access to credit or lease financing, vehicle insurance, and extended service contracts provided by GMAC or one of its subsidiaries.
      Because dealers maintain the primary sales and service interface with the ultimate consumer of GM products, the quality of GM dealerships and GM’s relationship with its dealers and distributors is significant to the success of the Corporation. In addition to the terms of its contracts with its dealers, GM is regulated by various state franchise laws that take precedence over those contractual terms and impose specific regulatory requirements and standards for initiating dealer network changes, pursuing terminations for cause, and other contractual matters.
Research, Development and Intellectual Property
      In 2005, GM incurred $6.7 billion in costs for research, manufacturing engineering, product engineering, and development activities related primarily to the development of new products or services or the improvement of existing products or services, including activities related to vehicle emissions control, improved fuel economy, and the safety of persons using GM products. GM spent $6.5 billion and $6.2 billion on similar company-sponsored research and other product development activities in 2004 and 2003, respectively. GM’s research activities include working to improve the environmental performance of our vehicles, diversify energy sources, and provide gasoline-saving solutions around the world. For example, in addition to our gas hybrid vehicles and fuel cell development activities, GM has delivered to date in the United States more than 1.5 million vehicles capable of running on E85, a blend of 85% ethanol and 15% gasoline, and we expect to produce approximately 400,000 more such vehicles in 2006.
      GM generates and holds a significant number of patents in a number of countries in connection with the operation of GM’s business. While none of these patents by itself is material to GM’s business as a whole, these patents are very important to GM’s operations and continued technological development. In addition,

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GM holds a number of trademarks and service marks that are very important to GM’s identity and recognition in the marketplace.
Raw Materials, Services and Supplies
      GM purchases a wide variety of raw materials, parts, supplies, freight, transportation, energy, and other services from numerous firms and suppliers for use in the manufacture of our products. The raw materials primarily consist of steel, aluminum, resins, copper, lead, and platinum group metals. GM has not experienced any significant shortages of raw materials and normally does not carry substantial inventories of such raw materials in excess of levels reasonably required to meet our production requirements. Recently, the global automotive industry has experienced increases in commodity costs, most notably for steel and petroleum-based products (such as resins). These price increases have been driven by increased global demand for steel and petroleum, in large part due to strong demand in Asia. GM attempts to manage fluctuations in commodity prices through the use of derivatives. GM does not speculate in the use of derivatives, but rather attempts to systematically hedge percentages of raw material purchases.
      In many instances, GM purchases systems, components and parts and supplies from a single source, and may be at an increased risk for supply disruptions. Furthermore, the inability or unwillingness of GM’s largest supplier, Delphi Corporation (Delphi), to supply GM with parts and supplies could adversely affect GM because GM’s production could be limited without those supplies.
      Based on our standard payment terms with our systems, components and parts suppliers, we are generally required to pay most of these suppliers on the second day of the second month following delivery.
Competitive Position
      The global automotive industry is highly competitive. The principal factors that determine consumer automobile preferences in the markets in which we operate include price, quality, style, safety, reliability, fuel economy and functionality. The table below sets forth, as of December 31, 2005, GM’s principal competitors in passenger cars and trucks in the United States and their respective U.S. market shares. We also compete with these and other manufacturers on a worldwide basis.
         
    U.S Market Share
     
GM
    25.9 %
Ford Motor Company
    18.2 %
DaimlerChrysler AG
    15.3 %
Toyota Corporation
    13.0 %
Honda Motor Company, Ltd. 
    8.4 %
Nissan Motor Corporation, Ltd. 
    6.2 %
      The global automobile market is growing, especially in developing economies such as China and India. While GM has the leading market share in the United States, some of its competitors have greater market shares in other countries in which GM competes. Even though GM produced the second highest annual volume in its operating history in 2005, its market share on a worldwide basis declined from 14.4% in 2004 to 14.2% in 2005.
Environmental and Regulatory Matters
Automotive Emissions Control
      Both the U.S. federal and California governments currently impose stringent emission control requirements on vehicles sold in their respective jurisdictions. These requirements include pre-production testing of vehicles, testing of vehicles after assembly, the imposition of emission defect and performance warranties, and

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the obligation to recall and repair customer-owned vehicles determined to be non-compliant with emissions requirements.
      Both the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) continue to place emphasis on compliance testing of customer-owned vehicles. We believe that our vehicles meet currently applicable EPA and CARB requirements. However, failure to comply with the emission standards or defective emission control systems or components discovered during such testing, or discovered during government-required defect reporting, can lead to substantial cost for General Motors related to emissions recalls. New CARB and federal requirements will increase the time and mileage periods over which manufacturers are responsible for a vehicle’s emission performance.
      Both the EPA and the CARB emission requirements will become even more stringent in the future. A new tier of exhaust emission standards for cars and light-duty trucks, the “Low-Emission Vehicles (LEV) II” standards, began phasing in for California vehicles in the 2004 model year. Similar federal “Tier 2” standards began phasing in during 2004. In addition, both the CARB and the EPA have adopted more stringent standards applicable to future heavy-duty trucks.
      California requires that a specified percentage of cars and certain light-duty trucks be zero emission vehicles (ZEVs), such as electric vehicles or hydrogen fuel cell vehicles. This requirement started at 10% in model year 2005 and increases in subsequent years. Manufacturers have the option of meeting a portion of this requirement with partial ZEV credits, which are vehicles that meet very stringent exhaust and evaporative emission standards and have extended emission system warranties. An additional portion of the ZEV requirement can be met with vehicles that meet these partial ZEV requirements and incorporate advanced technology, such as a hybrid electric propulsion system meeting specified criteria.
      The Clean Air Act permits states that have areas with air quality compliance issues to adopt the California car and truck emission standards in lieu of the federal requirements, and four states (New York, Massachusetts, Maine and Vermont) have these requirements in effect now. Six states (Connecticut, New Jersey, Oregon, Pennsylvania, Rhode Island and Washington) have or are adopting the California requirements that will begin in the future. Additional states could also adopt the California standards in the future.
      In addition to the above-mentioned exhaust emission programs, onboard diagnostic (OBD) systems, used to diagnose problems with emission control systems, were required both federally and in California effective with the 1996 model year. This system has the potential of increasing warranty costs and the chance for recall. OBD requirements become more challenging each year as vehicles must meet lower emission standards, and new diagnostics are required. California has adopted more stringent OBD requirements beginning in the 2004 model year, including new design requirements and corresponding enforcement procedures.
      New evaporative emission control requirements for cars and trucks began phasing in with the 1995 model year in California and the 1996 model year federally. Systems are being further modified to accommodate onboard refueling vapor recovery (ORVR) control standards. ORVR was phased-in on passenger cars in the 1998 through 2000 model years, and is phasing-in on light-duty trucks in the 2001 through 2006 model years. Beginning with the 2004 model year, even more stringent evaporative emission standards apply in California, as well as federally.
Industrial Environmental Control
      GM is subject to various laws relating to protection of the environment, including laws regulating air emissions, water discharges, waste management, and environmental cleanup.

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      GM is in various stages of investigation or remediation for sites where contamination has been alleged, and recorded a liability of $255 million at December 31, 2005 and $214 million at December 31, 2004 for worldwide environmental investigation and remediation as summarized below:
  •  GM has been identified as a potentially responsible party at sites identified by the EPA and state regulatory agencies for investigation and remediation of soil and/or groundwater contamination under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar state statutes. GM voluntarily and actively participates in cleanup activity where such involvement has been verified. The total liability for sites involving GM was $66 million at December 31, 2005. This compares with $79 million at December 31, 2004.
 
  •  For closed plants owned by the Corporation, the estimated liability for environmental investigation and remediation was $29 million at December 31, 2005, based on an environmental assessment of the plant property. This compares with $17 million at December 31, 2004. The increase in 2005 was primarily due to additional clean-up responsibilities at two idled facilities.
 
  •  GM is involved in investigation and remediation activities at additional locations worldwide with an estimated liability of $160 million at December 31, 2005. This compares with an estimated liability of $118 million at December 31, 2004. The increase in 2005 was primarily due to additional clean-up responsibilities at an active facility.
      The cost impact of the Clean Air Act Amendments under the Title V Renewable Operating Permit Program is the annual emission fees of approximately $2 million per year and annual cost of on-going testing of $1 million to $2 million per year. Additionally, under the Clean Air Act, complying with the Hazardous Air Pollutant standards is estimated to cost an aggregate of approximately $55 million from 2006 through 2007. General Motors also spends approximately $7 million per year to comply with regulatory reporting requirements.
      GM is implementing and publicly reporting on various voluntary initiatives to reduce energy consumption and greenhouse gas emissions from its operations around the globe. GM surpassed its 2005 target of a reduction of 8% in carbon dioxide (CO2) emissions from its global facilities compared to 2000 emission levels. By 2004, GM had reduced CO2 emissions from its global facilities by 12.5% compared to 2000 levels. Several GM facilities are included in the European emissions trading regime, which is being implemented to meet the European Community’s greenhouse gas reduction commitments under the Kyoto Protocol. GM has been reporting in accordance with the Global Reporting Initiative (GRI), the Carbon Disclosure Project, and the DOE 1605(b) since the inception of the programs. Global Environment and Energy goals and progress made on all voluntary programs are available in GM’s Corporate Responsibility Report at www.gmresponsibility.com.
Vehicular Noise Control
      All vehicles manufactured and sold by General Motors may be subject to noise emission regulation.
      In the United States, passenger cars and light-duty trucks are subject to state and local motor vehicle noise regulations. General Motors is committed to designing and developing its products to meet these noise requirements. Addressing the various vehicle noise regulations established in numerous state and local jurisdictions, however, is not practical or possible. The Corporation therefore identifies the most stringent requirements and validates to a composite requirement that satisfies the most stringent of these requirements. In those rare instances where a state or local noise regulation is not covered by the composite requirement, a waiver of the requirement is requested. Medium to heavy-duty trucks are regulated at the federal level. Federal truck regulations preempt all United States state/local noise regulations for trucks over 10,000 lbs. gross vehicle weight rating (GVWR).
      Outside the United States, noise regulations have been established by national and supranational (e.g., European Union or United Nations Economic Commission for Europe) authorities. General Motors believes that its vehicles meet all applicable noise regulations in the markets where they are sold.

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Automotive Fuel Economy
      The Energy Policy and Conservation Act passed in 1975 provided for production-weighted average fuel economy requirements for passenger cars built for the 1978 model year and thereafter. Based on EPA combined city-highway test data, the GM 2005 model year domestic passenger car fleet achieved a Corporate Average Fuel Economy (CAFE) of 29.2 miles per gallon (mpg), which exceeded the requirement of 27.5 mpg. GM’s CAFE estimate for 2006 model year domestic passenger cars is projected at 29.1 mpg.
      For GM’s imported passenger cars, 2005 model year CAFE attained 30.5 mpg. which exceeded the requirement of 27.5 mpg. The CAFE estimate for 2006 model year import passenger cars is 29.8 mpg.
      Fuel economy standards for light-duty trucks became effective in 1979. General Motors’ light truck CAFE fleet average for the 2005 model year achieved at 21.8 mpg which exceeds the requirement of 21.0 mpg. GM’s 2006 model year truck CAFE is projected at 22.6 mpg which exceeds the requirement of 21.6 mpg. The National Highway Traffic Safety Administration (NHTSA) has proposed new fuel economy standards for trucks for model years 2008 — 2011 and substantial changes to the structure of the truck CAFE program.
      In addition, in 2002 California passed legislation (known as Assembly Bill 1493) requiring the California Air Resources Board (CARB) to regulate greenhouse gas emissions from new motor vehicles sold in the state beginning in the 2009 model year. Because CO2 is the primary greenhouse gas emitted by automobiles and CO2 emissions are directly proportional to the amount of fuel consumed by motor vehicles, AB 1493 is tantamount to establishing state level fuel economy standards, which is prohibited by the federal fuel economy law. Nonetheless, CARB promulgated its AB 1493 Rule standards, which effectively require about a 40% increase in new vehicle fuel economy by 2016. These standards are now subject to legal challenges by the Alliance of Automobile Manufacturers and several dealers in federal court and by GM, DaimlerChrysler and several dealers in state court.
      Because CARB has characterized its AB 1493 Rule as an “emission” regulation, other states have adopted the California CO2 requirements pursuant to claimed authority under the federal Clean Air Act. As of March 2006, the following states have adopted California’s AB 1493 Rule imposing CO2 (i.e., state fuel economy) requirements on new motor vehicles beginning with the 2009 model year: Connecticut, Maine; Massachusetts; New Jersey; New York; Oregon; Rhode Island; Vermont; and Washington. Other states, such as Pennsylvania, are also considering adoption of the AB 1493 Rule.
      Because these attempts at state regulation of fuel economy are believed to be preempted by the federal fuel economy law, the industry has filed several federal lawsuits challenging the AB 1493 Rule. In addition to the California federal litigation mentioned above, there are also federal lawsuits challenging the AB 1493 Rule in Vermont and Rhode Island.
      Further, in 1999, ACEA (the European Auto Manufacturers’ Association) and the European Union established a voluntary agreement with an emission target of 140 grams of CO2 per kilometer on average for new passenger cars sold in the European Union by 2008. Discussions are now ongoing between the European Union and European auto manufacturers, including GM, on targets for the period beyond 2008.
      We continue to improve the fuel efficiency of our vehicles, even as we add more safety features, customer convenience options, enhance utility and performance and address other environmental aspects of our products, which as they add mass to a vehicle tend to lower its fuel economy. GM provides the broadest array of fuel efficient cars and trucks in the United States of any manufacturer. Based on EPA 2006 fuel economy data, GM leads in fuel economy comparisons on a model to model basis across the vehicle spectrum in the United States. For both cars and trucks, GM leads in 56% (74 of 132) of the comparisons (combined city-highway unadjusted) in which GM has an offering. GM’s product lineup includes a wide array of models that get an EPA estimated 30 miles per gallon or better on the highway – more than any other automaker. Overall fuel economy and CO2 emissions from cars and light duty trucks on the road are determined by a number of factors, including what products customers select and how they use them, congestion, transit alternatives, fuel quality and availability and land use patterns.

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      GM has established aggressive near, mid and long-term plans to develop and bring to market technologies designed to further improve fuel efficiency, reduce emissions and provide additional value and benefits to our customers. These include enhancements to conventional internal combustion engine technology such as Active Fuel Management, variable valve timing systems, six-speed automatic transmissions, and flex-fuel E85 ethanol vehicles. In addition, GM currently offers hybrid-electric buses that are capable of improving the fuel efficiency of city buses by 25% to 50%, and reducing some emissions by as much as 90%. GM currently has hybrid-electrical systems in full-sized pickup trucks available in the market and is bringing a range of additional hybrid products to market over the next several years. In 2006, GM will offer the Saturn VUE Green Line with a GM Hybrid System, and in 2007, GM plans to launch a Two-mode Hybrid system in our large sport utility vehicles. GM has extensive efforts underway to develop fuel cell vehicles designed to run on hydrogen. GM believes that the development and global implementation of new, cost-effective energy technologies in all sectors, such as hydrogen fuel cells, is the most effective way to improve energy efficiency and reduce greenhouse gas emissions.
      Despite these advanced technology efforts, GM’s ability to satisfy fuel economy requirements is contingent on various future economic, consumer, legislative, and regulatory factors that GM cannot control and cannot predict with certainty. If GM is not able to comply with specific new fuel economy requirements, including state CO2 requirements such as those imposed by the AB 1493 Rule, then GM could be subject to sizeable civil penalties and/or could have to severely restrict product offerings or close plants to remain in compliance. Any such actions could have substantial adverse impacts on GM operations, including plant closings and loss of sales revenue.
Non U.S. Regulation
      GM’s non U.S. operations are affected significantly by various laws and government regulations which are designed to reduce automotive emissions, encourage the recycling of end-of-life vehicles and parts and increase fuel economy and vehicle safety. Many foreign governments impose certain tariffs, non-tariff trade barriers and other price or exchange controls on imports. In addition, certain foreign governments place restrictions on the ability of GM to repatriate profits. GM works to mitigate any adverse effect of these regulations on GM’s business and operations.
Safety
      New vehicles and equipment sold by GM in the United States are required to meet certain safety standards promulgated by the National Highway Traffic Safety Administration (NHTSA). The National Traffic and Motor Vehicle Safety Act of 1966 authorizes the NHTSA to determine these standards and the schedule pursuant to which they are implemented. In addition, if there is a vehicle defect that creates an unreasonable risk to motor vehicle safety or a noncompliance with a safety standard, the act generally requires that the manufacturer notify owners and provide a remedy. The Transportation Recall Enhancement, Accountability and Documentation Act requires GM to report certain information relating to certain customer complaints, warranty claims, field reports, lawsuits and non U.S. fatalities and recalls.
      In addition to these U.S. rules, GM is subject to certain safety regulations in the non U.S. markets in which it operates. For the most part, these standards are similar to applicable U.S. standards. Nevertheless, from time to time, these countries pass regulations which are more stringent than U.S. standards.
Pension Legislation
      GM is subject to a variety of federal rules and regulations which govern the manner in which it administers its pensions. The U.S. Congress is currently considering two separate bills which would effect significant reforms in these rules and regulations, the Pension Protection Act of 2005, which passed the U.S. House of Representatives (House) on December 16, 2005 and the Pension Security and Transparency Act, which passed the U.S. Senate (Senate) on December 23, 2005. GM does not know what form the final

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version of any pension reform legislation may take or whether such legislation will eventually become law. However, both bills are designed to increase the amount by which companies fund their pension plans, to require companies that sponsor defined benefit plans to pay higher premiums to the Pension Benefit Guaranty Corporation (PBGC), and to prohibit the funding of certain executive compensation agreements when a company’s pension plan is severely underfunded. The Senate bill also contains a provision which would use a company’s credit ratings as one condition, among several, in determining whether its pension plans should be considered “at risk” and thereby subject to stricter funding and benefit rules. While GM’s U.S. Hourly and Salaried pension plans were overfunded on a Statement of Financial Standards No. 87 basis by $7.5 billion as of December 31, 2005, under both versions of the proposed legislation, GM, under certain future circumstances, could become subject to additional funding requirements.
Export Control
      GM is subject to a number of domestic and international export control requirements. GM’s Office of Export Compliance (OEC) is responsible for addressing export compliance issues that are specified in regulations issued by the U.S. Department of State, the U.S. Department of Commerce and the U.S. Department of Treasury, as well as issues relating to non U.S. export control laws. The OEC works with export compliance officers in GM business units who address export compliance issues on behalf of their business organizations. If GM fails to comply with applicable export compliance regulations, GM could be subject to criminal and civil penalties and, under certain circumstances, suspension and debarment.
Employees
      As of December 31, 2005, GM employed approximately 335,000 employees, of whom approximately 67% (225,000) were hourly employees and approximately 33% (110,000) were salaried employees, in the following business segments (in thousands):
                 
    2005   2004
         
GMNA
    173       181  
GME(1)
    63       61  
GMLAAM
    31       29  
GMAP(2)
    31       15  
GMAC
    34       34  
Other
    3       4  
             
Total
    335       324  
             
 
(1)  2005 includes approximately 7,000 employees added from a former powertrain joint venture with Fiat.
 
(2)  2005 includes approximately 13,000 employees added as the result of the consolidation of GM Daewoo.
      As of December 31, 2005, GM had approximately 343,000 U.S. hourly and approximately 121,000 U.S. salaried retirees. As of December 31, 2005, approximately 75% (106,000) of GM’s U.S. employees were represented by unions. The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) represents the largest portion of our U.S. employees who are union members, representing approximately 102,000 employees. Our current collective bargaining agreement with the UAW expires in September 2007. In addition, many of our hourly employees outside the United States are represented by various unions.
Segment Reporting Data
      Operating segment and principal geographic area data for 2005, 2004, and 2003 are summarized in Note 26 to the GM Consolidated Financial Statements in Part II.

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Website Access to GM’s Reports
      GM’s internet website address is www.gm.com.
      Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act) are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.
Item 1A. Risk Factors
      We face a number of significant risks and uncertainties in connection with our operations. Our business, results of operations, and financial condition could be materially adversely affected by the factors described below, which we have divided generally into two categories:
  •  Risks related to GM and its automotive business; and
 
  •  Risks related to GM’s finance, mortgage and insurance businesses.
      While we describe each risk separately, some of these risks are interrelated and it is possible that certain risks could trigger the applicability of other risks described below. Also, the risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, could also potentially impair our business, results of operations and financial condition.
Risks related to GM and its automotive business
Our ability to achieve structural and material cost reductions and to realize production efficiencies for our automotive operations is critical to our ability to achieve our turnaround plan and return to profitability.
      We currently are in the process of implementing a number of structural (fixed) and material cost reduction and productivity improvement initiatives in our automotive operations, including substantial restructuring initiatives for our GMNA operations, which were unprofitable in 2005, as more fully discussed below in our Management’s Discussion and Analysis of Financial Condition and Result of Operations section. Successfully implementing these restructuring initiatives throughout our automotive operations, and in GMNA in particular, is critical to our future competitiveness and ability to return to profitability. However, there can be no assurance that these initiatives will be successful in this regard.
Financial difficulties, labor stoppages or work slowdowns at key suppliers, including Delphi, could result in a disruption in our operations and have a material adverse effect on our business.
      We rely on many suppliers to provide us with the systems, components and parts that we need to manufacture our automotive products and operate our business. In recent years, some of these suppliers have experienced severe financial difficulties and solvency problems. Financial difficulties or solvency problems at those suppliers could materially adversely affect their ability to supply us with the systems, components and parts that we need to operate our business, resulting in a disruption in our operations. Similarly, many of these suppliers utilize workforces with substantial union representation. Workforce disputes resulting in work stoppages or slowdowns at these suppliers could also have a material adverse effect on their ability to continue supplying us.
      In particular, our largest supplier, Delphi, filed a Chapter 11 bankruptcy petition in October 2005. While Delphi has indicated to us that it expects no disruption in its ability to continue supplying us with the systems, components and parts we need as Delphi pursues its bankruptcy restructuring plan, labor disruptions at Delphi resulting from Delphi’s pursuit of a restructuring plan could seriously disrupt our North American operations, prevent us from executing our GMNA turnaround initiatives, and materially adversely affect our business.

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      In addition, a number of our other suppliers, including Collins & Aikman Corporation, Dana Corporation and Tower Automotive, Inc., have filed Chapter 11 bankruptcy petitions, which could lead to a material adverse effect on our business.
Delphi may seek to reject or compromise its obligations to us through its Chapter 11 bankruptcy proceedings.
      In connection with its Chapter 11 bankruptcy restructuring, Delphi may attempt to reject some or all of its contracts with us in order to exit specific lines of business or increase the price GM pays for various systems, components and parts we purchase from Delphi. As a result, we could experience a material disruption in our supply of automotive systems, components and parts that could force the suspension of production at GM assembly facilities, which could materially adversely affect our business, including implementation of our GMNA turnaround initiatives. It is also difficult for us to quickly switch to a different supplier for some of the systems, components and parts we purchase from Delphi as a result of the extended validation and production lead times for these items.
      In addition, various financial obligations Delphi has to GM as of the date of Delphi’s Chapter 11 filing, including the $951 million payable for amounts that Delphi owed to GM relating to Delphi employees who were formerly GM employees and subsequently transferred back to GM as job openings became available to them under certain employee “flowback” arrangements as of the date of Delphi’s filing for Chapter 11, may be subject to compromise in the bankruptcy proceedings, which may result in GM receiving payment of only a portion of the face amount owed by Delphi. GM will seek to minimize this risk by protecting our right of setoff against the $1.15 billion we owed to Delphi as of the date of its Chapter 11 filing. A procedure for determining setoff claims has been put in place by the bankruptcy court. However, the extent to which these obligations are covered by our right to setoff may be subject to dispute by Delphi, the creditors committee, or Delphi’s other creditors, and limitation by the court. GM cannot provide any assurance that it will be able to fully or partially setoff such amounts. However, to date setoffs of approximately $52.5 million have been agreed to by Delphi and taken by GM. The financial impact of a substantial compromise of our right of setoff could have a material adverse impact on our financial position.
We have guaranteed a significant amount of Delphi’s financial obligations to its unionized workers. If Delphi fails to satisfy these obligations, we would be obligated to pay some of these obligations.
      In connection with the 1999 spin-off of Delphi from GM, we entered into separate agreements with the UAW, the International Union of Electrical Workers and the United Steel Workers unions. Under these agreements, we agreed to guarantee Delphi’s payment of certain levels of pension and post-retirement health-care and life insurance benefits (OPEB) to certain former GM U.S. hourly employees who were transferred to Delphi in connection with the spin-off. As a result, we are contractually responsible for such payments to the extent Delphi fails to pay these benefits at required levels.
      A separate agreement between GM and Delphi requires Delphi to indemnify GM if and to the extent GM makes payments under the benefit guarantees to the UAW employees or retirees. GM received a notice from Delphi, dated October 8, 2005, that it was more likely than not that GM would become obligated to provide benefits pursuant to the benefit guarantees to the UAW employees or retirees. The notice stated that Delphi was unable at that time to estimate the timing and scope of any benefits GM might be required to provide under those benefit guarantees. Any recovery by GM under indemnity claims against Delphi might be subject to partial or complete discharge in the Delphi reorganization proceeding. As a result, GM’s claims for indemnity may not be paid in full. We believe that it is probable that we have incurred a contingent liability under these benefit guarantees as a result of Delphi’s Chapter 11 filing. As a result, in the fourth quarter of 2005, we recorded a charge of $5.5 billion ($3.6 billion after tax) as an estimate of contingent exposures relating to Delphi’s Chapter 11 filing. We believe that the range of these contingent exposures is between $5.5 billion and $12 billion, with amounts near the low end of the range considered more possible than amounts near the high end of the range assuming an agreement is reached among GM, Delphi, and Delphi’s

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unions. These views reflect GM’s current assessment that it is unlikely that a Chapter 11 process will result in both a termination of Delphi’s pension plan and complete elimination of its OPEB plans.
      The amount of our ultimate liability for these contingent exposures may change, and will depend on the results of ongoing discussions among us, Delphi, and Delphi’s unions, and other factors. We are currently unable to estimate the amount of additional charges that could arise from Delphi’s Chapter 11 filing. Any increase in our contingent exposures, including under the benefit guarantees, could materially increase our expenses and adversely affect our results of operations.
Our health-care cost burden is one of our biggest competitive challenges, and if we do not make progress on structurally fixing this issue, it will continue to be a long-term threat to GM.
      GM’s health-care costs for employees and retirees have been rising significantly over the past few years. In particular, we are exposed to significant and growing liabilities for OPEB for both our hourly and salaried workforces. These OPEB liabilities have grown to approximately $84.9 billion on a global basis as of December 31, 2005, with increases in recent years primarily resulting from increases in health-care inflation and decreases in the discount rates used in calculating OPEB liabilities. To address these rising costs, we made modifications to health-care benefits for salaried workers and retirees in 2005 and, in February 2006, announced a cap on salaried retiree health care effective in January 2007. We also entered into a tentative agreement with the UAW related to retiree health care that we announced in October 2005 and finalized that agreement with the UAW and a class of hourly retirees in December 2005. This agreement is subject to court approval. Under this agreement, our U.S. pre-tax OPEB expense, which was $5.3 billion for 2005, is expected to decrease to an estimated $4.0 billion in 2006, which is before the effect (if any) of any amounts incurred or paid on the Delphi benefit guarantees and contributions to a defined contribution plan. In recent years, we have paid our OPEB expenditures from operating cash flow, which reduces our liquidity and cash flow from operations. We expect that our U.S. health-care cash spending will be $5.0 billion in 2006, which is before the effect (if any) of any amounts incurred or paid on the Delphi benefit guarantees and contributions to a defined contribution plan, down from $5.4 billion in 2005, principally due to our tentative agreement with the UAW. If this agreement is not approved by the court, these health-care savings will not be achieved.
      Controlling our health-care liabilities and expenses, particularly with respect to our hourly employees and retirees, is a critical element of our GMNA turnaround initiatives. However, our efforts to control these costs may not always be successful. Failure to adequately control our health-care costs is likely to result in materially higher expenses and have a material adverse effect on our results of operations.
Our extensive pension and OPEB obligations to retirees are a competitive disadvantage for us.
      We believe that we are competitively disadvantaged due to the relatively large number of retirees for whom we provide pension and OPEB benefits, consisting of both retiree health care and life insurance. In particular, we believe that our pension and OPEB cash expenditures as a percentage of revenues are significantly greater than our competitors and that, as a result, we have relatively less available cash to invest in product development and capital projects.
We have recently experienced a series of credit rating actions that have downgraded our credit ratings to historically low levels. Further reduction of our credit ratings, or failure to restore our credit ratings to higher levels, could have a material adverse effect on our business.
      Substantially all of our unsecured debt has been rated by four nationally recognized statistical rating organizations. Concerns over our competitive and financial strength, including whether we will experience a labor interruption and how we will fund our health-care liabilities, have led to a series of rating actions that have downgraded the credit ratings on our debt. These actions have substantially reduced our access to the unsecured debt markets and have unfavorably impacted our overall cost of borrowing. Each of GM and GMAC is currently assigned a non-investment grade rating by each of these rating agencies, and Residential

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Capital Corporation (ResCap), the holding company for GMAC’s residential mortgage business, has recently been downgraded to the lowest investment grade rating.
      Our current credit ratings have resulted in increased borrowing costs and could severely limit GM’s and GMAC’s access to unsecured debt markets. Our current credit ratings also increase the possibility that more burdensome and restrictive terms and conditions will be added to any new or replacement financing arrangements.
      Further downgrades of our current credit ratings, or significant worsening of our financial condition generally, could also result in increased demands by our suppliers for accelerated payment terms, increased finance charges, or other more onerous supply terms.
Our liquidity position could be negatively affected by a variety of factors, which in turn could have a material adverse effect on our business.
      While we believe that we currently have sufficient liquidity to operate our business over the short and medium term, our ability to meet our capital requirements over the long term will require substantial liquidity and will depend on our successful execution of our four-point turnaround plan and the return of our North American operations to profitability and positive cash flow, and our ability to execute the globalization of our principal business functions. Last year, we incurred a consolidated net loss of $10.6 billion, due primarily to losses at GMNA. We are subject to numerous risks and uncertainties that could negatively affect our cash flow and liquidity position in the future. These include, among other things, risk of labor disruptions (either at Delphi, our largest supplier, or at GM, such as in connection with the renegotiation of our collective bargaining agreement with the UAW in 2007), any inability to access (or amend or replace) our existing standby bank credit facility, any claims that may be successfully asserted against GM under various financing agreements in view of GM’s recent restatement of its prior financial statements, obligations associated with approximately $1.2 billion of convertible debentures that may be put to GM for cash settlement in March 2007 ahead of the scheduled maturity date, or pressure from suppliers to agree to changed payment or other contract terms. The occurrence of one or more of these events could weaken our liquidity position and, under certain circumstances, materially adversely affect our business, such as by curtailing our ability to make important capital expenditures.
GM’s recent restatement of its prior financial statements could negatively impact its rights and obligations under certain contracts to which it is a party, including its $5.6 billion standby credit facility, which could under certain circumstances materially adversely affect GM’s future liquidity.
      GM believes that it has a good faith basis on which to make a borrowing request under its $5.6 billion unsecured standby line of credit facility. However, in view of GM’s recent restatement of its prior financial statements, there is substantial uncertainty as to whether the bank syndicate would be required to honor such a request, and therefore there is a high risk that GM would not be able to borrow under this facility. GM believes that this matter is unlikely to be tested because GM has no current need or intention to draw on the existing facility. Moreover, GM is currently exploring the possibility of amending or replacing the existing facility with new terms that would, among other things, resolve any uncertainty regarding GM’s ability to borrow thereunder. There can be no assurance that GM will be successful in negotiating an amendment or replacement of the existing credit line or, if so, as to the amount, terms or conditions of any such amended or replacement facility. GM believes that issues also may arise from its restatement under various financing agreements, which consist principally of obligations in connection with sale/ leaseback transactions and other lease obligations and do not include GM’s public debt indentures, as to which GM is a party. GM is currently studying the effect of its recent restatement of prior financial statements under these agreements, including its legal rights (such as its ability to cure) with respect to any claims that could be asserted as well as economic disincentives for third parties to raise such claims to the extent they have them. Under certain circumstances, these matters could materially adversely affect GM’s future liquidity.

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Continued failure to achieve profitability may cause some or all of our deferred tax assets to expire.
      As of December 31, 2005, we had approximately $21.6 billion in U.S. net deferred tax assets. These deferred tax assets include 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. However, many of these deferred tax assets 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 deferred tax assets. However, it is possible that some or all of these deferred tax assets could ultimately expire unused, especially if our GMNA restructuring initiatives are not successful or if GMAC’s income declines. Furthermore, if GMAC’s U.S. pre-tax income declines or if a significant portion of GMAC’s U.S. pre-tax income were to no longer be available to GM, because of the sale of a controlling interest in GMAC or otherwise, a substantial valuation allowance may be required, which would materially increase our expenses in the period taken and adversely affect our business. If we were required to record a valuation allowance against all of our U.S. deferred tax assets as of December 31, 2005, our resulting total stockholders’ equity would have been negative.
Restrictions in our labor agreements, including the JOBS bank provisions in the UAW agreement, could limit our ability to pursue or achieve cost savings through restructuring initiatives, and labor strikes, work stoppages or similar difficulties could significantly disrupt our operations.
      Substantially all of the hourly employees in our U.S., Canadian and European automotive operations are represented by labor unions and are covered by collective bargaining agreements, which usually have a multi-year duration. Many of these agreements include provisions that limit our ability to realize cost savings from restructuring initiatives such as plant closings and reductions in work force. In particular, our collective bargaining agreement with the UAW, which covers the majority of our U.S. hourly employees, includes a JOBS bank provision that requires us to continue paying full wages and benefits, generally after 48 weeks of layoff, during the term of the agreement to qualified employees who would have otherwise been laid off due to plant idlings or other restructuring initiatives. We have been discussing these provisions with the UAW in an effort to develop an agreed upon accelerated attrition program by which we can reduce the number of employees that are and will be in the JOBS bank in a cost effective manner. However, currently this provision significantly limits our ability in the United States to achieve cost savings through plant idlings, workforce reductions, or similar initiatives and, in particular, our ability to execute our GMNA turnaround initiatives.
      As part of our discussions with the UAW, on March 22, 2006, GM, Delphi and the UAW reached a tentative agreement intended to reduce the number of U.S. hourly employees through an accelerated attrition program. The agreement is subject to approval by the bankruptcy court of Delphi’s participation in the agreement. We cannot provide any assurance that the bankruptcy court will approve of Delphi’s participation in the agreement (and if such approval is not obtained, GM and the UAW will have no obligations under the agreement) or that enough employees will agree to participate in the attrition program to reduce employment levels at GM sufficient to provide the benefits we anticipate.
      Our current collective bargaining agreement with the UAW will expire in September 2007. Any UAW strikes, threats of strikes, or other resistance in connection with the negotiation of a new agreement could impair our ability to implement further measures to reduce structural costs and improve production efficiencies in furtherance of our GMNA initiatives.
The government is currently investigating certain of our accounting practices. The final outcome of these investigations could require us to restate prior financial results.
      The SEC has issued subpoenas to us in connection with various matters that it is investigating. These matters for which we have received subpoenas include our financial reporting concerning pension and OPEB, certain transactions between us and Delphi, supplier price reductions or credits, and any obligation we may have to fund pension and OPEB costs in connection with Delphi’s Chapter 11 proceedings. In addition, the SEC recently issued a subpoena in connection with an investigation of our transactions in precious metal raw

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materials used in our automotive manufacturing operations, and a federal grand jury recently issued a subpoena in connection with supplier credits. Separately, SEC and federal grand jury subpoenas have been served on GMAC entities in connection with industry-wide investigations into practices in the insurance industry relating to loss mitigation insurance products such as finite risk insurance. We are cooperating with the government in connection with all these investigations. A negative outcome of one or more of these investigations could require us to restate prior financial results (in addition to our recent restatements) and could result in fines, penalties, or other remedies being imposed on GM, which under certain circumstances could have a material adverse effect on our business.
We operate in a highly competitive industry that has excess manufacturing capacity.
      The automotive industry is highly competitive and overall manufacturing capacity in the automotive industry exceeds current demand, which is at a historically high level. We have encountered significant price competition in our markets and expect this competition to continue in the future. In addition, many of the markets in which we compete present few barriers to entry for our competitors. Over the past several years, industry-wide manufacturing overcapacity has put pressure on GM and other manufacturers to make vehicles more attractive to customers by adding vehicle enhancements or marketing incentives or reducing vehicle prices in certain markets. Some strategies employed to help maintain market share are subsidized financing or leasing programs, option package discounts or rebates. This overcapacity has had, and is expected to continue to have a negative impact on our vehicle pricing, market share and operating results, and presents a significant risk to our ability to enhance our per vehicle revenue.
The bankruptcy or insolvency of a major competitor could result in further competitive disadvantages for us in relation to that competitor.
      Certain of our major competitors are obligated, like us, to provide substantial pension and OPEB benefits to their retirees. The bankruptcy or insolvency of a major competitor with substantial pension and OPEB obligations could result in that competitor gaining a significant cost advantage over us by eliminating or reducing through bankruptcy its contractual obligations to unions and other parties. In addition, the bankruptcy or insolvency of a major U.S. automotive manufacturer could lead to a disruption in our supply base, which could materially adversely affect our business.
Shortages and increases in the price of fuel can result in diminished profitability due to shifts in consumer vehicle demand.
      High gasoline prices in 2005 have contributed to weaker demand for certain of our higher margin vehicles, especially our full-size sport utility vehicles, as consumer demand has shifted to more fuel-efficient, smaller and lower margin vehicles. Any future increases in the price of gasoline in the United States or in our other markets, or any sustained shortage of fuel, could weaken further the demand for such vehicles. Such a result could lead to lower revenues and have a material adverse effect on our business.
A decline in consumer demand for our higher margin vehicles could result in diminished profitability.
      Our results of operations depend not only on the number of vehicles we sell, but also the product mix of our vehicle sales. Sales of full-size and luxury vehicles are generally more profitable for us than sales of our smaller and lower-priced vehicles. Similarly, retail sales of vehicles are generally more profitable to us than fleet sales. Shifts in demand away from these higher margin sales could materially adversely affect our business.
Our indebtedness and other obligations of our automotive operations are significant and could materially adversely affect our business.
      We have a significant amount of indebtedness. As of December 31, 2005, we had approximately $33 billion in loans payable and long-term debt outstanding for our automotive operations, which includes

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approximately $1.2 billion of convertible debentures that may be put to GM for cash settlement in March 2007. Our significant indebtedness may have several important consequences. For example, it could:
  •  Require us to dedicate a significant portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, which will reduce the funds available for other purposes; and
 
  •  Make us more vulnerable to adverse economic and industry conditions, limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions.
      Any one or more of these consequences could have a material adverse effect on our business.
Our pension and OPEB expenses are affected by factors outside our control, including the performance of plan assets, interest rates, actuarial data and experience, and changes in laws and regulations.
      Our future funding obligations for our IRS-qualified U.S. defined benefit pension plans and OPEB plans depend upon changes in the level of benefits provided for by the plans, the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine minimum ERISA funding levels, actuarial data and experience, and any changes in government laws and regulations. In addition, our employee benefit plans hold a significant amount of equity securities. If the market values of these securities decline to a point where our pension obligations are not fully funded, our pension and OPEB expenses would increase and, as a result, could materially adversely affect our business. Any decreases in interest rates, if and to the extent not offset by contributions and asset returns, could also increase our obligations under such plans. We may be legally required to make contributions to the pension plans in the future, and those contributions could be material.
      In addition, the Financial Accounting Standards Board (FASB) has announced that it is considering changes in the accounting rules for pensions and other postretirement benefits. The rule changes that are expected to be proposed in March 2006 would require a company to include on its balance sheet an additional net asset or net liability to reflect the funded or unfunded status, as the case may be, of its retirement plans. In light of the unrecognized losses associated with our pension and OPEB liabilities under existing accounting rules, if these expected proposed rules had been in effect as of December 31, 2005, the substantial additional liability that we would have had to include on our balance sheet would have caused our total stockholders’ equity to be negative.
      Further, the U.S. Congress is currently considering legislation that, if adopted, would affect the manner in which GM administers its pensions. This proposed legislation is designed, among other things, to increase the amount by which companies fund their pension plans and to require companies that sponsor defined benefit plans to pay higher premiums to the PBGC. If this proposed legislation becomes law, GM, under certain future circumstances, could become subject to additional material funding requirements.
The pace of introduction and market acceptance of new vehicles is important to our success.
      Customers have come to expect new and improved vehicle models to be introduced frequently. In order to meet these expectations, we must introduce on an annual basis both new vehicle models as well as enhanced versions of existing vehicle models. Our competitors have introduced, and likely will continue to introduce, new and improved vehicle models designed to meet consumer expectations. Because product lifecycles do not all coincide, some competitive vehicles will always be newer than some of our existing models in the same market segments. This has and will continue to put pricing and vehicle enhancement pressure on our vehicles and, in some vehicle segments, has and will result in market share declines. In addition, consumer preferences for vehicles in certain market segments change over time. Vehicles in less popular segments may have to be discounted in order to be sold in similar volumes. Further, the pace of our development and introduction of new and improved vehicles is dependent on our ability to successfully implement improved technological innovations in design, production and manufacturing. Continuing reduction in our margins, sales volumes and market shares will result if we are unable to produce models that compare favorably to competing models,

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particularly in our higher margin vehicle lines such as full-size sport utility vehicles. Vehicle lines that are particularly important to our future success include our new sport utility vehicles and pickup trucks, and there can be no assurance of success related to market acceptance of these or any other products.
Economic and industry conditions constantly change and could have a material adverse effect on our business and results of operations.
      Our business and results of operations are tied to general economic and industry conditions. The number of cars and trucks sold industry-wide can vary from year to year. Demand for our vehicles depends largely on general economic conditions, including the strength of the global and local market economies, unemployment levels, consumer confidence levels, the availability of credit and the availability and cost of fuel. Cars and trucks are durable items, the replacement of which can be significantly deferred. Difficult economic conditions may also cause buying patterns to shift to less-expensive and lower margin vehicle models or to used vehicles. While we may attempt to limit the effect of these trends through pricing or other marketing measures, these trends can have a material adverse effect on our business. Because we have higher fixed costs, relatively small changes in the number of vehicles sold can have a significant effect on our business. Consequently, if industry demand softens due to, among other things, slowing or negative economic growth, our business, results of operations and financial condition may be materially adversely affected. There can be no assurance that current industry vehicle sales levels will continue.
Changes in existing, or the adoption of new, laws, regulations or policies of governmental organizations may have a significant negative impact on how we do business.
      We are affected significantly by a substantial amount of costly governmental regulation, which is anticipated to increase. In the U.S. and Europe, for example, governmental regulation has arisen primarily out of environmental, vehicle safety and fuel economy concerns. The costs of complying with government regulatory requirements can be substantial, and it can be difficult to pass these costs through to our customers.
      Of particular concern are the U.S. mandated corporate average fuel economy requirements. If these standards are increased significantly, we may have to curtail sales of our higher margin vehicles. Similarly, a number of states have adopted regulations that establish carbon dioxide emission standards that effectively impose heightened fuel economy standards for new vehicles sold in those states. Although GM and other automobile manufacturers are challenging certain of these state regulations in court, no assurance can be given that these challenges will be successful.
      Similarly, meeting or exceeding government-mandated safety standards is difficult and costly, because crashworthiness standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. While GM is managing its product development and production operations on a global basis to reduce costs and lead times, unique national or regional standards or vehicle rating programs can result in additional costs for product development, testing, and manufacturing. Governments often require the implementation of new requirements during the middle of a product cycle, which can be substantially more expensive than accommodating these requirements during the design of a new product.
Our businesses outside the United States expose us to additional risks that may cause our revenues and profitability to decline.
      We conduct a significant portion of our automotive business and our finance, insurance and mortgage businesses outside the United States. We intend to continue to pursue growth opportunities for our businesses outside the United States, which could expose us to greater risks. The risks associated with our operations outside the United States include:
  •  Multiple foreign regulatory requirements that are subject to change, including foreign regulations restricting our ability to sell our products in those countries;

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  •  Differing local product preferences and product requirements;
 
  •  Fluctuations in foreign currency exchange rates and interest rates;
 
  •  Difficulty in establishing, staffing and managing foreign operations;
 
  •  Differing labor regulations;
 
  •  Consequences from changes in tax laws;
 
  •  Foreign state takeovers of our manufacturing facilities in those countries; and
 
  •  Political and economic instability, natural calamities, war and terrorism.
      The effects of these risks may, individually or in the aggregate, materially adversely affect our business.
A failure of or interruption in the communications and information systems on which we rely to conduct our operations could adversely affect our business.
      We rely heavily upon communications and information systems to conduct our business in each country and market in which we operate. The failure or interruption of our information systems or the third-party information systems on which we rely could cause supply, production and delivery delays in connection with our automotive operations. Such a failure or interruption could cause underwriting or other delays or result in significantly fewer applications being received, slower processing of applications and reduced efficiency in servicing in connection with GMAC’s operations. The occurrence of any of these events could have a material adverse effect on our business.
We could be materially adversely affected by changes in currency exchange rates, commodity prices, equity prices and interest rates.
      We are exposed to risks related to the effects of changes in foreign currency exchange rates, commodity prices, equity prices and interest rates. While we carefully watch and attempt to manage these exposures, these types of changes can have material adverse effects on our business.
We are subject to significant risks of litigation.
      We are currently subject to numerous litigation matters, including a number of stockholder and bondholder class action and derivative lawsuits. We cannot provide assurance that we will be successful in defending any of these matters, and adverse judgments could, under certain circumstances, materially adversely affect our business. We are also regularly named a defendant in purported class actions alleging a variety of vehicle defects, in product liability cases seeking damages for personal injury, and in suits alleging GM responsibility for claimed asbestos related illnesses. Some of these matters are described in greater detail in our Legal Proceedings section below. Since the outcomes of such pending or future litigation are not predictable, we cannot provide assurance that, under certain circumstances, such litigation will not materially adversely affect our business.
Risks related GM’s finance, mortgage and insurance businesses
We are considering the sale of a controlling interest in GMAC as well as exploring strategic and structural alternatives for ResCap. There is a risk that these initiatives may not occur, or if they do occur, they may not delink GMAC’s credit rating from GM’s credit rating or maintain ResCap’s investment grade credit rating. In addition, any such initiative, if completed, would reduce our interest in their earnings going forward.
      As previously announced, we are exploring the possible sale of a controlling interest in GMAC, as well as exploring other strategic and structural alternatives with respect to ResCap. The extent of the effect on GMAC’s and ResCap’s credit ratings, if any, will depend on the structure and other terms of any potential

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transaction as well as the extent of GMAC’s ongoing credit exposure to GM. We are uncertain at this time if any transaction with respect to GMAC or ResCap will occur or, if any transaction were to occur, on what terms. Furthermore, even if a third party acquires a controlling interest in GMAC, or if a transaction is completed with respect to ResCap, there is the possibility that these initiatives will not delink GMAC’s credit rating from GM’s credit rating or maintain ResCap’s credit rating at investment grade.
      Failure to execute a GMAC strategic transaction will place further pressure on both GM’s and GMAC’s credit profiles, potentially resulting in further downgrades with GMAC’s credit ratings explicitly re-linked to those of GM. Moreover, any reduction in the automotive finance capacity of GMAC could materially adversely affect GM’s business to the extent that third party financing is not available to fund GM’s automotive sales. In the absence of a transaction:
  •  GMAC’s access to capital may be seriously constrained, as most unsecured funding sources may decline, including bank funding;
 
  •  The cost of funds related to borrowings that are secured by assets may increase, leading to a reduction in liquidity for certain asset classes;
 
  •  It may be increasingly difficult to securitize assets, resulting in reduced capacity to support overall automotive originations;
 
  •  Uncompetitive funding costs may result in a lower return on capital and significantly lower earnings and dividends; and
 
  •  GMAC may need to consider divesting certain businesses in order to maintain adequate liquidity to fund new originations or otherwise preserve the value of its businesses.
      In addition, any such transactions, if completed, would reduce our interest in the earnings of GMAC and ResCap, although the financial effects of that reduction would be offset by the value of any consideration we receive from a purchaser.
Our finance, mortgage and insurance businesses require substantial capital, and if we are unable to maintain adequate financing sources, our business, results of operations and financial condition will suffer and jeopardize our ability to continue operations.
      Our liquidity and ongoing profitability in this segment are in large part dependent upon our timely access to capital and the costs associated with raising funds in different segments of the capital markets. Our primary sources of financing include public and private securitizations and whole loan sales. To a lesser extent, we also use institutional unsecured term debt, commercial paper and retail debt offerings. Reliance on any one source can change going forward.
      We depend and will continue to depend on our ability to access diversified funding alternatives to meet future cash flow requirements and to continue to fund our operations. Negative credit events specific to GMAC, or other events affecting the overall debt markets have adversely impacted our funding sources, and continued or additional negative events could further adversely impact our funding sources, especially over the long-term. If we are unable to maintain adequate financing, or if other sources of capital are not available to us, we could be forced to suspend, curtail or reduce certain aspects of our insurance, mortgage and finance operations, which could harm our business, results of operations and financial condition.
      Furthermore, we utilize asset and mortgage securitizations and sales as a critical component of our diversified funding strategy. Several factors could affect our ability to complete securitizations and sales, including conditions in the securities markets generally, conditions in the asset-backed or mortgage-backed securities markets, the credit quality and performance of our contracts and loans, our ability to service our contracts and loans and a decline in the ratings given to securities previously issued in our securitizations. Any of these factors could negatively affect the pricing of our securitizations and sales, resulting in lower proceeds from these activities.

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We are exposed to credit risk which could affect the business, results of operations and financial condition of our finance, mortgage and insurance operations.
      We are subject to credit risk resulting from defaults in payment or performance by customers for our contracts and loans as well as contracts and loans that are securitized and in which we retain a residual interest. There can be no assurances that our monitoring of our credit risk as it impacts the value of these assets and our efforts to mitigate credit risk through our risk-based pricing, appropriate underwriting policies and loss mitigation strategies are or will be sufficient to prevent an adverse effect on the business, results of operations and financial condition of our finance, mortgage and insurance operations. As part of the underwriting process, we rely heavily upon information supplied by third parties. If any of this information is intentionally or negligently misrepresented and the misrepresentation is not detected prior to completing the transaction, the credit risk associated with the transaction may be increased.
Our earnings may decrease because of increases or decreases in interest rates.
      The profitability of our finance, mortgage and insurance operations is directly affected by changes in interest rates. The following are some of the risks we face relating to an increase in interest rates:
  •  Rising interest rates will increase our cost of funds.
 
  •  Rising interest rates may reduce our consumer automotive financing volume by influencing consumers to pay cash for, as opposed to financing, vehicle purchases.
 
  •  Rising interest rates generally reduce our residential mortgage loan production as borrowers become less likely to refinance and the costs associated with acquiring a new home become more expensive.
 
  •  Rising interest rates will generally reduce the value of mortgage and automotive financing loans and contracts, retained interests and fixed income securities held in our investment portfolio.
      We are also subject to risks from decreasing interest rates. For example, a significant decrease in interest rates could increase the rate at which mortgages are prepaid, which could require us to write down the value of our retained interests. Moreover, if prepayments are greater than expected, the cash we receive over the life of our mortgage loans held for investment and our retained interests would be reduced. Higher-than-expected prepayments could also reduce the value of our mortgage servicing rights and, to the extent the borrower does not refinance with us, the size of our servicing portfolio. Therefore, any such changes in interest rates could harm the business, results of operations and financial condition of our finance, mortgage and insurance operations.
Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates.
      We employ various economic hedging strategies to mitigate the interest rate and prepayment risk inherent in many of our assets. Our hedging strategies rely on assumptions and projections regarding our assets, liabilities, and general market factors. If these assumptions and projections prove to be incorrect, or if our hedges do not adequately mitigate the impact of changes in interest rates or prepayment speeds, we may incur losses that could adversely affect the business, results of operations and financial condition of our finance, mortgage and insurance operations.
ResCap’s ability to pay dividends and to prepay subordinated debt obligations to GMAC is restricted by contractual arrangements.
      In June 2005, we entered into an operating agreement with GMAC and ResCap to create separation between GMAC and ourselves, on the one hand, and ResCap, on the other hand. The operating agreement restricts ResCap’s ability to declare dividends or prepay subordinated indebtedness to GMAC. As a result of

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these arrangements, ResCap has obtained investment grade credit ratings for its unsecured indebtedness that are separate from our ratings and the ratings of GMAC.
      The restrictions contained in the ResCap operating agreement include the requirements that ResCap’s stockholder’s equity be at least $6.5 billion in order for dividends to be paid to GMAC or our other affiliates, and that the cumulative amount of any such dividends may not exceed 50% of ResCap’s cumulative consolidated net income, measured from July 1, 2005, through the time such dividend is paid, minus the cumulative amount of certain prepayments of our subordinated debt by ResCap if such prepayments exceed 50% of ResCap’s cumulative consolidated net income at the time a dividend is paid. At December 31, 2005, ResCap had consolidated stockholder’s equity of approximately $7.5 billion.
      The ResCap operating agreement further restricts ResCap’s ability to prepay subordinated debt owed to us or any of our other affiliates. As of December 31, 2005, ResCap owed GMAC $4.1 billion pursuant to a Subordinated Note Agreement, under which interest is payable quarterly and all outstanding principal is due at maturity on September 30, 2015.
We use estimates and assumptions in determining the fair value of certain of our assets, in determining our allowance for credit losses, in determining lease residual values and in determining our reserves for insurance losses and loss adjustment expenses. If our estimates or assumptions prove to be incorrect, the business, results of operations and financial condition of our finance, mortgage and insurance operations could be materially adversely affected.
      We use estimates and various assumptions in determining the fair value of many of our assets, including retained interests and securitizations of loans and contracts, mortgage servicing rights and other investments which do not have an established market value or are not publicly traded. We also use estimates and assumptions in determining our allowance for credit losses on our loan and contract portfolios, in determining the residual values of leased vehicles and in determining our reserves for insurance losses and loss adjustment expenses with respect to reported losses and losses incurred but not reported. It is difficult to determine the accuracy of our estimates and assumptions, and our actual experience may differ materially from these estimates and assumptions. A material difference between our estimates and assumptions and our actual experience may materially adversely affect the business, results of operations and financial condition of our finance, mortgage and insurance operations.
General business and economic conditions of the industries and geographic areas in which we operate affect the business, results of operations and financial condition of our finance, mortgage and insurance operations.
      Our business, results of operation and financial condition are sensitive to general business and economic conditions in the United States and in the markets in which we operate outside the United States. A downturn in economic conditions resulting in increased unemployment rates, increased consumer and commercial bankruptcy filings or other factors that negatively impact household incomes could decrease demand for our financing and mortgage products and increase delinquency and loss. In addition, because our credit exposures are generally collateralized, the severity of losses is particularly sensitive to a decline in used vehicle and residential home prices.
      Some further examples of these risks include the following:
  •  A significant and sustained increase in gasoline prices could decrease new and used vehicle purchases, thereby reducing the demand for automotive retail financing and automotive wholesale financing.
 
  •  A general decline in residential home prices in the United States could negatively affect the value of our mortgage loans held for investment and our retained interests in securitized mortgage loans. Such a decrease could also restrict our ability to originate, sell or securitize mortgage loans and impact the repayment of advances under our warehouse loans.

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  •  An increase in automotive labor rates or parts prices could negatively affect the value of our automotive extended service contracts.
Our business, results of operations and financial condition may be materially adversely affected by decreases in the residual value of off-lease vehicles.
      Our expectation of the residual value of a vehicle subject to an automotive lease contract is a critical element used to determine the amount of the lease payments under the contract at the time that it is entered into by the customer. As a result, to the extent that the actual residual value of the vehicle, as reflected in the sales proceeds received upon remarketing, is less than the expected residual value for the vehicle at lease inception, GMAC will incur a loss on the lease transaction. General economic conditions, the supply of off-lease vehicles and new vehicle market prices heavily influence used vehicle prices and thus the actual residual value of off-lease vehicles. Our brand image, consumer preference for our products, and our marketing programs that influence the new and used vehicle market for our vehicles also influence lease residual values. In addition, our ability to efficiently process and effectively market off-lease vehicles impacts the disposal costs and proceeds realized from the vehicle sales. Differences between the actual residual values realized on leased vehicles and our expectations of such values at contract inception could have a negative impact on our business, results of operation and financial condition.
Fluctuations in valuation of investment securities or significant fluctuations in investment market prices could negatively affect revenues.
      Investment market prices in general are subject to fluctuation. Consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value which could negatively affect our revenues. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments, national and international events and general market conditions.
Changes in existing U.S. government-sponsored mortgage programs, or disruptions in the secondary markets in the United States or in other countries in which our mortgage subsidiaries operate, could materially adversely affect the business, results of operations and financial condition of our mortgage business.
      The ability of GMAC’s mortgage subsidiaries to generate revenue through mortgage loan sales to institutional investors in the United States depends to a significant degree on programs administered by government-sponsored enterprises such as Fannie Mae, Freddie Mac, Ginnie Mae and others that facilitate the issuance of mortgage-backed securities in the secondary market. These government-sponsored enterprises play a powerful role in the residential mortgage industry and our mortgage subsidiaries have significant business relationships with them. Proposals are being considered in Congress and by various regulatory authorities that would affect the manner in which these government-sponsored enterprises conduct their business, including proposals to establish a new independent agency to regulate the government-sponsored enterprises, to require them to register their stock with the SEC, to reduce or limit certain business benefits that they receive from the U.S. government and to limit the size of the mortgage loan portfolios that they may hold. Any discontinuation of, or significant reduction in, the operation of these government-sponsored enterprises could materially adversely affect our revenues and profitability of our mortgage business. Also, any significant adverse change in the level of activity in the secondary market or the underwriting criteria of these government-sponsored enterprises could adversely affect our business.

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GMAC may be required to repurchase contracts and provide indemnification if GMAC breaches representations and warranties from its securitization and whole loan transactions, which could harm our business, results of operations and financial condition.
      When GMAC sells retail contracts or leases through whole loan sales or securitizes retail contracts, leases or wholesale loans to dealers, GMAC is required to make customary representations and warranties about the contracts, leases or loans to the purchaser or securitization trust. GMAC’s whole loan sale agreements generally require GMAC to repurchase retail contracts or provide indemnification if GMAC breaches a representation or warranty given to the purchaser. Likewise, GMAC is required to repurchase retail contracts, leases or loans and may be required to provide indemnification if GMAC breaches a representation or warranty in connection with its securitizations.
      Similarly, sales by GMAC’s mortgage subsidiaries of mortgage loans through whole loan sales or securitizations require GMAC to make customary representations and warranties about the mortgage loans to the purchaser or securitization trust. GMAC’s whole loan sale agreements generally require GMAC to repurchase or substitute loans if GMAC breaches a representation or warranty given to the purchaser. In addition, GMAC’s mortgage subsidiaries may be required to repurchase mortgage loans as a result of borrower fraud or if a payment default occurs on a mortgage loan shortly after its origination. Likewise, GMAC is required to repurchase or substitute mortgage loans if GMAC breaches a representation or warranty in connection with its securitizations. The remedies available to a purchaser of mortgage loans may be broader than those available to GMAC’s mortgage subsidiaries against the original seller of the mortgage loan. If a mortgage loan purchaser enforces its remedies against GMAC’s mortgage subsidiaries, GMAC may not be able to enforce the remedies it has against the seller of the loan or the borrower.
Significant indemnification payments or contract, lease or loan repurchase activity of retail contracts or leases or mortgage loans could harm our business, results of operations and financial condition.
      GMAC and its mortgage subsidiaries have repurchase obligations in their respective capacities as servicers in securitizations and whole loan sales. If a servicer breaches a representation, warranty or servicing covenant with respect to an automotive receivable or mortgage loan, then the servicer may be required by the servicing provisions to repurchase that asset from the purchaser. If the frequency at which repurchases of assets occurs increases substantially from its present rate, the result could be a material adverse effect on our business, results of operations and financial condition or those of our mortgage subsidiaries.
A loss of contractual servicing rights could have a material adverse effect on our operations.
      GMAC is the servicer for all of the receivables it has originated and transferred to other parties in securitizations and whole loan sales of automotive receivables. GMAC’s mortgage subsidiaries service the mortgage loans it has securitized, and GMAC services the majority of the mortgage loans that GMAC has sold in whole loan sales. In each case, GMAC is paid a fee for its services, which fees in the aggregate constitute a substantial revenue stream for us. In each case, we are subject to the risk of termination under the circumstances specified in the applicable servicing provisions.
      In most securitizations and whole loan sales, the owner of the receivables or mortgage loans will be entitled to declare a servicer default and terminate the servicer upon the occurrence of specified events. These events typically include a bankruptcy of the servicer, a material failure by the servicer to perform its obligations or a failure by the servicer to turn over funds on the required basis. The termination of these servicing rights, were it to occur, could have a material adverse effect on our business, results of operations and financial condition and/or those of our mortgage subsidiaries. For the year ended December 31, 2005, our consolidated mortgage servicing fee income was $1.6 billion.

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The regulatory environment in which GMAC operates could have a material adverse effect on its business.
      Our domestic finance, mortgage and insurance operations are generally subject to various laws and judicial and administrative decisions imposing various requirements and restrictions relating to supervision and regulation by state and federal authorities. Such laws and supervision are primarily for the benefit and protection of our customers, and not for the benefit of investors in our securities, and could limit our discretion in operating our business. Noncompliance with applicable statutes or regulations could result in the suspension or revocation of any license or registration at issue, as well as the imposition of civil fines and criminal penalties. In addition, changes in the accounting rules or their interpretation could have an adverse effect on our business, results of operations and financial condition.
      Our finance, mortgage and insurance operations are also heavily regulated in many jurisdictions outside the United States. For example, certain of our foreign subsidiaries operate either as a bank or a regulated finance company in the local markets and our insurance operations are subject to various requirements in the markets in which they operate. The varying requirements of these jurisdictions may be inconsistent with U.S. rules and may materially adversely affect our business or limit necessary regulatory approvals, or if approvals are obtained we may not be able to continue to comply with the terms of the approvals or applicable regulations. In addition, in many countries the regulations applicable to the financial services industry are uncertain and evolving, and it may be difficult for us to determine the exact regulatory requirements.
      Our inability to remain in compliance with regulatory requirements in a particular jurisdiction could have a material adverse effect on our operations in that market with regard to the affected product and on our reputation generally. There can be no assurance that applicable laws or regulations will not be amended or construed differently, that new laws and regulations will not be adopted or that we will not be prohibited by local laws from raising interest rates above certain desired levels, any of which could materially adversely affect our business, results of operations and financial condition.
The worldwide financial services industry is highly competitive. If we are unable to compete successfully or if there is increased competition in the automotive financing, mortgage and/or insurance markets or generally in the markets for securitizations or asset sales, our margins could be materially adversely affected.
      The markets for automotive and mortgage financing, insurance and reinsurance are highly competitive. The market for automotive financing has grown as more consumers are financing their vehicle purchases, primarily in North America and Europe. Our mortgage business faces significant competition from commercial banks, savings institutions, mortgage companies and other financial institutions. Our insurance business faces significant competition from insurance carriers, reinsurers, third party administrators, brokers and other insurance-related companies. Many of our competitors have substantial positions nationally or in the markets in which they operate. Some of our competitors have lower cost structures, lower cost of capital and are less reliant on securitization and sale activities. We face significant competition in various areas, including product offerings, rates, pricing and fees and customer service. If we are unable to compete effectively in the markets in which we operate, our business, results of operation and financial condition could be negatively affected.
      The markets for asset and mortgage securitizations and whole loan sales are competitive, and other issuers and originators could increase the amount of their issuances and sales. In addition, lenders and other investors within those markets often establish limits on their credit exposure to particular issuers, originators and asset classes, or they may require higher returns to increase the amount of their exposure. Increased issuance by other participants in the market, or decisions by investors to limit their credit exposure to, or to require a higher yield for, us or to automotive or mortgage securitizations or whole loans, could negatively affect our ability to price our securitizations and whole loan sales at attractive rates. The result would be lower proceeds from these activities and lower profits for GMAC.

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Item 1B.      Unresolved Staff Comments
      None.
* * * * * *
Item 2. Properties
      The Corporation, excluding its Financing and Insurance Operations, has approximately 335 locations operating in approximately 40 states and approximately 200 cities in the United States. Of these, approximately 20 are engaged in the final assembly of GM cars and trucks; approximately 30 are service parts operations responsible for distribution or warehousing; and the remainder are offices or involved primarily in the testing of vehicles or the manufacturing of automotive components and power products. In addition, the Corporation has approximately 20 locations in Canada and assembly, manufacturing, distribution, or warehousing operations in approximately 55 other countries, including equity interests in associated companies which conduct assembly, manufacturing, or distribution operations. The major facilities outside the United States and Canada, which are principally vehicle manufacturing and assembly operations, are located in:
             
• Germany
  • Australia   • China   • Poland
• United Kingdom
  • Sweden   • Thailand   • South Korea
• Brazil
  • Belgium   • Argentina   • South Africa
• Mexico
  • Spain   • Portugal    
      Most facilities are owned by the Corporation or its subsidiaries. Leased properties consist primarily of warehouses and administration, engineering, and sales offices. The leases for warehouses generally provide for an initial period of five years and contain renewal options. Leases for sales offices are generally for shorter periods.
      Properties of GM and its subsidiaries include facilities which, in the opinion of management, are suitable and adequate for the manufacture, assembly and distribution of their products.
      Additional information regarding worldwide expenditures for plants and equipment is presented in Note 26 to the GM Consolidated Financial Statements in Part II.
      GMAC owns properties in southeastern Michigan that are leased to GM. GMAC primarily operates its finance, insurance and mortgage businesses from leased office space.
Item 3. Legal Proceedings
      Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation became, or was, a party during the year ended December 31, 2005, or subsequent thereto but before the filing of this report, are summarized below:
Canadian Export Antitrust Class Actions
      Seventy-nine purported class actions on behalf of all purchasers of new motor vehicles in the United States since January 1, 2001, have been filed in various state and federal courts against General Motors Corporation, General Motors of Canada Ltd. and Ford, Daimler Chrysler, Toyota, Honda, Nissan and BMW and their Canadian affiliates, the National Automobile Dealers Association and the Canadian Automobile Dealers Association. The federal court actions have been consolidated for coordinated pretrial proceedings in federal court under the caption In re New Market Vehicle Canadian Export Antitrust Litigation Cases in the U.S. District Court for the District of Maine and the more than 30 California cases have been consolidated in the California Superior Court in San Francisco County under the case captions Belch v. Toyota, et al. and Bell v. General Motors.

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Legal Proceedings (continued)
      The nearly identical complaints allege that the defendant manufacturers, aided by the association defendants, conspired among themselves and with their dealers to prevent the sale to United States citizens of vehicles produced for the Canadian market and sold by dealers in Canada. The complaints allege that new vehicle prices in Canada are 10% to 30% lower than those in the United States and that preventing the sale of these vehicles to United States citizens resulted in the payment of supracompetitive prices by United States consumers. The complaints, as amended, seek injunctive relief under federal antitrust law and treble damages under federal and state antitrust laws, but do not specify damages. The complaints further allege unjust enrichment and violations of state unfair trade practices act. On March 5, 2004, the federal court in Maine issued a decision holding that the purported indirect purchaser classes failed to state a claim for damages but allowed a separate claim seeking to enjoin future alleged violations to continue. On March 10, 2006, the federal court in Maine certified a nationwide class of buyers and lessees under Federal Rule 23(b)(2) solely for injunctive relief. The court expressly deferred to an unspecified later time a decision on plaintiffs’ Federal Rule 23(b)(3) motion to certify a class for damages under the laws of as many as 23 states and the District of Columbia. No determination has been made to certify any of these cases as a damages class action under federal or state law. General Motors believes its actions have been lawful and intends to vigorously defend these cases.
* * * * * * *
Health Care Litigation
      UAW, et al. v. General Motors Corporation — On October 18, 2005, the UAW and two hourly retirees filed a putative class action in the U.S. District Court for the Eastern District of Michigan on behalf of hourly retirees, spouses and dependants, seeking to enjoin unilateral modifications by GM to hourly retiree health-care benefits, claiming that such benefits are unalterably vested. GM maintains that retiree health-care benefits are not vested and that it has expressly reserved the right to make unilateral changes. On October 29, 2005, GM and the UAW entered into a memorandum of understanding that provided for a number of changes to health care coverage for both UAW represented active employees and UAW retirees. On October 31, 2005, plaintiffs’ filed an amended complaint adding four additional retirees and one surviving spouse as putative class representatives. The lawsuit followed months of negotiations between GM and the UAW regarding changes to retiree health-care benefits and is the initial step in implementing this agreement.
      On December 16, 2005, GM, the UAW and the putative class representatives finalized a settlement agreement and submitted motions to the court for certification of the class, preliminary approval of the final settlement and approval of the proposed notice to class members. At a hearing on December 22, 2005, the court granted the motion for class certification, preliminarily approved the final settlement agreement and directed that proposed notice of the settlement be mailed to class members. That mailing was complete on December 30, 2005. A final hearing to determine whether the settlement agreement is fair, reasonable and adequate with respect to the class was held on March 6, 2006. GM is awaiting a final determination on the settlement agreement by the court.
* * * * * * *
General Motors Securities Litigation
      On September 19, 2005, Folksam Asset Management filed a purported class action complaint in the U.S. District Court for the Southern District of New York naming as defendants GM, GMAC, and GM’s Chairman and Chief Executive Officer, G. Richard Wagoner, Jr., Vice Chairman, John Devine, Treasurer, Walter Borst and Chief Accounting Officer, Peter Bible, Folksam Asset Management, et.al. v. General Motors, et al. Plaintiffs purported to bring the claim on behalf of purchasers of GM debt and/or equity

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Legal Proceedings (continued)
securities during the period February 25, 2002 through March 16, 2005. The complaint alleges that defendants violated Section 10(b) and, with respect to the individual defendants, Section 20(a) of the Exchange Act. The complaint also alleges violations of Section 11, Section 12(a) and, with respect to the individual defendants, Section 15 of the Securities Act of 1933, as amended (Securities Act), in connection with certain registered debt offerings during the class period. In particular, the complaint alleges that GM’s cash flows during the class period were overstated based on the “reclassification” of certain cash items described in the Corporation’s 2004 Form 10-K. The reclassification involves cash flows relating to the financing of GMAC wholesale receivables from dealers that resulted in no net cash receipts and GM’s decision to revise Consolidated Statements of Net Cash for the years ended 2002 and 2003. The complaint also alleges misrepresentations relating to forward-looking statements of the Corporation’s 2005 earnings forecast that were later revised significantly downward. In October 2005, a similar suit, asserting claims under the Exchange Act based on substantially the same factual allegations, was filed and subsequently consolidated with the Folksam case, Galliani, et.al. v. General Motors, et al. The consolidated suit is now called In re General Motors Securities Litigation.
      On November 18, 2005, plaintiffs in the Folksam case filed an amended complaint, which adds several additional investors as plaintiffs, extends the end of the class period to November 9, 2005, and names as additional defendants three current and one former member of GM’s audit committee, as well as GM’s independent accountants, Deloitte & Touche LLP. In addition to the claims asserted in the original complaint, the amended complaint adds a claim against defendants Wagoner and Devine for rescission of their bonuses and incentive compensation during the class period. It also includes further allegations regarding GM’s accounting for pension obligations, restatement of income for 2001, and financial results for the first and second quarters of 2005. Neither the original complaint nor the amended complaint specify the amount of damages sought and defendants have no means to estimate damages the plaintiffs will seek based upon the limited information available in the complaint. Defendants have not yet filed their response to the complaints, but intend to vigorously defend these actions. On January 17, 2006, the court made provisional designations of lead plaintiff and lead counsel, which designations were made final on February 6, 2006.
      On November 21, 2005, Teresa and Joseph Paul Sacco filed a purported class action, Sacco, et al. v. General Motors Corporation, et al. On December 21, 2005, Charles Rosen filed a purported class action, Rosen, et al. v. General Motors Corporation, et al. Both of these actions were filed in the U.S. District Court for the Eastern District of Michigan against GM, G. Richard Wagoner, Jr., John F. Smith, Jr. (in Rosen only), Peter R. Bible, and John M. Devine. Plaintiffs purported to bring claims on behalf of purchasers of GM stock during the period April 18, 2001 through November 9, 2005. The complaints alleged that defendants violated Section 10(b) and, with respect to the individual defendants, Section 20(a) of the Exchange Act. The complaints focused on certain statements regarding the Corporation’s financial performance. The complaints did not specify the amount of damages sought, and defendants had no means to estimate damages the plaintiffs sought based upon the limited information available in the complaints. On January 6, 2006, the plaintiffs in Sacco filed a notice of voluntary dismissal. On February 16, 2006, the plaintiffs in Rosen filed a notice of voluntary dismissal.
* * * * * * *
Shareholder Derivative Suits
      On November 10, 2005, Albert Stein filed a purported shareholder derivative action in the Eastern District of Michigan, ostensibly on behalf of GM, against the members of the GM board of directors at that time, Stein v. Bowles, et al. The complaint alleges that defendants breached their fiduciary duties of due care, loyalty and good faith by, among other things, causing GM to overstate its income (as reflected in the Corporation’s restatement of 2001 earnings and second quarter 2005 earnings) and exposing the Corporation to potential damages in SEC investigations and investor lawsuits. The suit seeks damages based on defendants’

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Legal Proceedings (continued)
alleged breaches and an order requiring defendants to indemnify the Corporation for any future litigation losses. Plaintiffs claim that demand on the GM board to bring suit itself (ordinarily a prerequisite to suit under Delaware law) is excused because it would be “futile.” The complaint does not specify the amount of damages sought and defendants have no means to estimate damages the plaintiffs will seek based upon the limited information available in the complaint.
      On December 15, 2005, Henry Gluckstern filed a purported shareholder derivative action in the U.S. District Court for the Eastern District of Michigan, ostensibly on behalf of GM, against the GM board of directors, Gluckstern v. Wagoner, et al. This suit is substantially identical to Stein v. Bowles, et al. Also on December 15, 2005, John Orr filed a substantially identical purported shareholder derivative action in the U.S. District Court for the Eastern District of Michigan, ostensibly on behalf of GM, against the GM board of directors, Orr v. Wagoner, et al. Counsel for plaintiffs in the Stein, Gluckstern and Orr actions have filed a motion to consolidate these three actions, to appoint lead plaintiff and to approve selection of lead counsel. The directors have not yet filed their response to the Stein, Gluckstern and Orr complaints, but intend to vigorously defend these actions.
      On December 2, 2005, Sharon Bouth filed a similar purported shareholder derivative action in the Circuit Court of Wayne County, Michigan, ostensibly on behalf of GM, against the members of the GM board of directors and a GM officer not on the board, Bouth v. Barnevik, et al. The complaint alleges that defendants breached their fiduciary duties of due care, loyalty and good faith by, among other things, causing GM to overstate its earnings and cash flow and improperly account for certain transactions and exposing GM to potential damages in SEC investigations and investor lawsuits. The suit seeks damages based on defendants’ alleged breaches and an order requiring defendants to indemnify the Corporation for any future litigation losses. Plaintiffs claim that demand on the GM board is excused because it would be “futile.” The complaint does not specify the amount of damages sought and defendants have no means to estimate damages the plaintiffs will seek based upon the limited information available in the complaint.
      On December 16, 2005, Robin Salisbury filed an action in the Circuit Court of Wayne County, Michigan substantially identical to the Bouth case described above, Salisbury v. Barnevik, et.al. The Salisbury and Bouth cases have been consolidated and plaintiffs have stated they intend to file an amended consolidated complaint. The directors and the officer not on the board named in these cases have not yet filed their responses to the Bouth or Salisbury complaints, but intend to vigorously defend these actions.
* * * * * * *
Motion for Consolidation and Transfer to the Eastern District of Michigan
      On December 13, 2005, defendants in In re General Motors Securities Litigation (previously Folksam Asset Management v. General Motors, et al. and Galliani v. General Motors, et.al.) and Stein v. Bowles, et al. filed a Motion with the Judicial Panel on Multidistrict Litigation to transfer and consolidate these cases for pretrial proceedings in the U.S. District Court for the Eastern District of Michigan.
      On January 5, 2006, defendants submitted to the Judicial Panel on Multidistrict Litigation an Amended Motion seeking to add to their original Motion the Rosen, Gluckstern, and Orr cases for consolidated pretrial proceedings in the U.S. District Court for the Eastern District of Michigan. The Panel has set this motion for hearing on March 30, 2006.
* * * * * * *
Bondholder Class Actions
      On November 29, 2005, Stanley Zielezienski filed a purported class action, Zielezienski, et al. v. General Motors, et al. The action was filed in the Circuit Court for Palm Beach County, Florida, against GM, GMAC,

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Legal Proceedings (continued)
GM’s Chairman and Chief Executive Officer, G. Richard Wagoner, Jr., GMAC’s Chairman, Eric A. Feldstein, and certain GM and GMAC officers, namely, William F. Muir, Linda K. Zukauckas, Richard J.S. Clout, John E. Gibson, W. Allen Reed, Walter G. Borst, John M. Devine and Gary L. Cowger. The action also names certain underwriters of GMAC debt securities as defendants. The complaint alleges that defendants violated Section 11 of the Securities Act, and with respect to all defendants except GM, Section 12(a)(2) of the Securities Act. The complaint also alleges that GM violated Section 15 of the Securities Act. In particular, the complaint alleges material misrepresentations in certain GMAC financial statements incorporated by reference with GMAC’s 2003 Form S-3 Registration Statement and Prospectus. More specifically, the complaint alleges material misrepresentations in connection with the offering for sale of GMAC SmartNotes in certain GMAC financial statements contained in GMAC’s Forms 10-Q for the quarterly periods ended in March 31, 2004 and June 30, 2004 and the Form 8-K which disclosed financial results for the quarterly period ended in September 30, 2004, were materially false and misleading as evidenced by GMAC’s 2005 restatement of these quarterly results. In December 2005, plaintiff filed an amended complaint making substantially the same allegations as were in the previous filing with respect to additional debt securities issued by GMAC during the period from April 23, 2004 to March 14, 2005 and adding approximately 60 additional underwriters as defendants. The complaint does not specify the amount of damages sought and defendants have no means to estimate damages the plaintiffs will seek based upon the limited information available in the complaint. Defendants have not yet filed their response to the complaints, but intend to vigorously defend this action. On January 6, 2006, defendants named in the original complaint removed this case to the U.S. District Court for the Southern District of Florida. On February 6, 2006, plaintiff filed a motion to remand the case to Florida state court, which is currently being briefed by the parties. On March 28, 2006, the parties submitted a proposed stipulated order withdrawing plaintiff’s motion to remand and transferring the case to the United States District Court for the Eastern District of Michigan. If this order is entered, the parties have agreed to seek to have this case consolidated with the J&R Marketing and Mager cases described below.
      On December 28, 2005, J&R Marketing, SEP, filed a purported class action, J&R Marketing, et al. v. General Motors Corporation, et al. The action was filed in the Circuit Court for Wayne County, Michigan, against GM, GMAC, Eric Feldstein, William F. Muir, Linda K. Zukauckas, Richard J.S. Clout, John E. Gibson, W. Allen Reed, Walter G. Borst, John M. Devine, Gary L. Cowger, G. Richard Wagoner, Jr. and several underwriters of GMAC debt securities. Similar to the original complaint filed in the Zielezienski case described above, the complaint alleges claims under Sections 11, 12(a), and 15 of the Securities Act based on alleged material misrepresentations or omissions in the registration statements for GMAC SmartNotes purchased between September 30, 2003 and March 16, 2005, inclusive. The complaint alleges inadequate disclosure of GM’s financial condition and performance as well as issues arising from GMAC’s 2005 restatement of quarterly results for the three quarters ended September 30, 2005. The complaint does not specify the amount of damages sought and defendants have no means to estimate damages the plaintiffs will seek based upon the limited information available in the complaint. Defendants have not yet filed their response to the complaint, but intend to vigorously defend this action. On January 13, 2006, defendants removed this case to the U.S. District Court for the Eastern District of Michigan.
      On February 17, 2006, Alex Mager filed a purported class action, Mager v. General Motors Corporation, et al. The action was filed in the U.S. District Court for the Eastern District of Michigan and is substantively identical to the J&R Marketing case described above. Defendants have not yet filed their response to the complaint, but intend to vigorously defend this action. On February 24, 2006, J&R Marketing filed a motion to consolidate the Mager case with its case (discussed above) and for appointment as lead plaintiff and the appointment of lead counsel. On March 8, 2006, the court entered an order consolidating the two cases.
      All of the above cases are in preliminary phases. No determination has been made that the shareholder and bondholder cases can be maintained as class actions or that the shareholder derivative actions can proceed

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Legal Proceedings (continued)
without making a demand in accordance with Delaware law that the GM board bring the actions. As a result, the scope of the actions and whether they will be permitted to proceed is uncertain.
* * * * * * *
Asbestos Litigation
      Like most domestic and foreign automobile manufacturers, over the years GM has used some brake products which incorporated small amounts of encapsulated asbestos. These products, generally brake linings, are known as asbestos-containing friction products. There is a significant body of scientific data demonstrating that these asbestos-containing friction products are not unsafe and do not create an increased risk of asbestos-related disease. GM believes that the use of asbestos in these products was appropriate.
      A number of the claims are being filed against GM by automotive mechanics and their relatives seeking recovery based on their alleged exposure to the small amount of asbestos used in brake components. These claims almost always identify numerous other potential sources for the claimant’s alleged exposure to asbestos, which do not involve GM or even asbestos-containing friction products, and many of these other potential sources would place users at much greater risk. The vast majority of these claimants do not have an asbestos-related illness and may never develop one. This is consistent with the experience reported by other automotive manufacturers and other end users of asbestos.
      Two other types of claims related to alleged asbestos exposure are being asserted against GM, representing a significantly lower exposure than the automotive friction product claims. Like other locomotive manufacturers, GM used a limited amount of asbestos in locomotive brakes and in the insulation used in the manufacturing of some locomotives. These uses have been the basis of lawsuits filed against GM by railroad workers seeking relief based on their alleged exposure to asbestos. These claims almost always identify numerous other potential sources for the claimant’s alleged exposure to asbestos, which do not involve GM or even locomotives. Many of these claimants do not have an asbestos-related illness and may never develop one. In addition, like many other manufacturers, a relatively small number of claims are brought by contractors who are seeking recovery based on alleged exposure to asbestos-containing products while working on premises owned by GM. These claims almost always identify numerous other potential sources for the claimant’s alleged exposure to asbestos which do not involve GM. The vast majority of these claimants do not have an asbestos-related illness and may never develop one.
      While GM has resolved many of these cases over the years and continues to do so for conventional strategic litigation reasons (avoiding defense costs and possible exposure to runaway verdicts), GM, as stated above, believes the vast majority of such claims against GM are without merit. Only a small percentage of the claims pending against GM allege the contraction of a malignant disease associated with asbestos exposure. GM intends to vigorously defend these actions whenever possible. The West Virginia and Ohio supreme courts have ruled that Federal law preempts asbestos tort claims asserted on behalf of railroad workers. Such preemption means that Federal law entirely eliminates the possibility that railroad workers could maintain state law claims against GM.
      As previously reported, GM’s annual expenditures associated with the resolution of these claims decreased in 2004 after increasing in nonmaterial amounts in prior years. They remained approximately the same in 2005, but the amount expended in any year is highly dependent on the number of claims filed, the amount of pretrial proceedings conducted, and the number of trials and settlements which occur during the period.
* * * * * * *

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Legal Proceedings (continued)
ERISA Class Actions
      In May 2005, the U.S. District Court for the Eastern District of Michigan consolidated under the case caption In re General Motors ERISA Litigation three related Employment Retirement Income Security Act (ERISA) purported class actions against GM and other named defendants who are alleged to be fiduciaries of the GM stock purchase programs and personal savings plans for salaried and hourly employees. In June 2005, plaintiffs filed a consolidated class action complaint against GM, the Investment Funds Committee of the GM board, its individual members, GM’s Chairman and Chief Executive Officer, members of GM’s Employee Benefits Committee during the putative class period, General Motors Investment Management Corporation (GMIMCo) and State Street Bank. The complaint alleges that the GM defendants breached their fiduciary duties to plan participants by, among other things, investing their assets, or offering them the option of investing, in GM stock on the ground that it was not a prudent investment. Plaintiffs purport to bring these claims on behalf of all persons who were participants in or beneficiaries of the plans from March 18, 1999 to the present, and seek to recover losses allegedly suffered by the plans. The complaint does not specify the amount of damages sought and defendants have no means at this time to estimate damages the plaintiffs will seek. Defendants filed a motion to dismiss the complaint in September 2005. The court heard arguments on the defendants’ motion on February 1, 2006, but has not yet ruled on the motion. No determination has been made that the case can be maintained as a class action. General Motors intends to vigorously defend this action.
      In addition, GMIMCo, a wholly-owned subsidiary of GM, is one of numerous defendants in several purported class action lawsuits filed in March and April 2005, in the U.S. District Court for the Eastern District of Michigan alleging violations of ERISA with respect to the Delphi company stock plans for salaried and hourly employees. On September 13, 2005, the cases were consolidated under the case caption In re Delphi ERISA Litigation and have been transferred to the Eastern District of Michigan for coordinated pretrial proceedings with other Delphi shareholder lawsuits in which GMIMCo is not named as a defendant. On March 3, 2006, the lead plaintiffs appointed by the court filed a consolidated amended class action complaint alleging that from May 28, 1999 to November 1, 2005, GMIMCo, a named fiduciary of the Delphi plans, breached its fiduciary duties to plan participants by allowing them to invest in the Delphi Common Stock Fund when it was imprudent to do so, failing to monitor State Street Bank and Trust, the entity appointed by GMIMCo to serve as investment manager for the Delphi Common Stock Fund, and by knowingly participating in, enabling, or failing to remedy breaches of fiduciary duty by other defendants. No determination has been made that a class action can be maintained against GMIMCo and there have been no decisions on the merits of the claims. GMIMCo intends to defend these cases vigorously.
* * * * * * *
Hughes Split-Off Class Actions
      On April 11 and 14, 2003, two purported class actions, Young v. Pearce, et al. and Silverstein v. Pearce, et al., were filed in Delaware Chancery Court on behalf of owners of GM Class H shares against Hughes Electronics Corporation, General Motors Corporation, News Corporation and the Hughes directors. On April 11 and 15, 2003, two purported class actions, Matcovsky, et al., v. Hughes Electronics Corporation, et al. and Brody v. Hughes Electronics Corporation, et al., were filed in Superior Court in Los Angeles, California, against Hughes, GM and the Hughes and GM directors. Two purported stockholder class actions which name only General Motors and the GM directors have been brought in Delaware Chancery Court challenging the agreements with News Corp., Wyser-Pratte Management Company v. General Motors Corporation, et al., which was filed April 18, 2003, and Robert LaMarche v. General Motors Corporation, et al., which was filed April 28, 2003. The Delaware cases were consolidated in the Delaware Chancery Court and the California cases were consolidated in state court in Los Angeles and plaintiffs in both cases have filed consolidated complaints.

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Legal Proceedings (concluded)
      The Delaware cases allege that GM and the GM directors performed ultra vires acts and that the GM directors breached their fiduciary duties by approving a transaction that is more favorable to the holders of GM $12/3 par value common stock than the holders of GM Class H common stock. They claim that the holders of GM Class H common stock were treated unfairly because (1) GM received mostly cash for its shares while the holders of GM Class H common stock received News Corp. American Depositary Shares (ADSs) that may fluctuate in value, (2) GM received a $275 million payment from Hughes, (3) a substantial number of shares of GM Class H common stock were contributed to various GM employee benefit plans prior to announcement of the deal to improve the prospects of shareholder approval, and (4) the transaction was announced just prior to the announcement of improved financial results at Hughes and PanAmSat to make it appear that holders of GM Class H common stock would receive a premium that would exceed the 20% recapitalization premium provided for in the GM restated certificate of incorporation, as amended. The California cases allege that the transactions involving News Corp.’s acquisition of a 34% interest in Hughes provides benefits to GM not available to all GM Class H shareholders, in violation of fiduciary duties. The new consolidated complaints are similar to the original complaints, except that the Delaware complaint adds allegations challenging the adequacy of the disclosures in the consent solicitation and only names GM and members of the GM board of directors as defendants. Plaintiffs in both cases seek unspecified damages. GM’s motion to dismiss the Delaware cases was granted by the Delaware Chancery Court on May 4, 2005. On March 20, 2006, the Delaware Supreme Court unanimously affirmed the dismissal of the consolidated Delaware cases. In the California cases, the claims against directors without any connection to California have been dismissed and the consolidated case has been stayed pending a ruling on the motion to dismiss the Delaware consolidated complaint. GM and the director defendants intend to vigorously defend the lawsuits.
* * * * * * *
John Evans and Evans Cooling System v. General Motors
      On March 15, 2006, the Connecticut Supreme Court reversed and remanded to the trial court for a jury trial a judgment in favor of GM alleging trade secret misappropriation. Plaintiffs John Evans and Evans Cooling Systems, Inc. commenced litigation against GM in January 1994 comprising separate suits for patent infringement and trade secret misappropriation. In the patent case, summary judgment for GM was affirmed on appeal. In the trade secret case, following a four-week trial in 2003, the presiding judge ruled for GM and plaintiffs appealed. Plaintiffs seek relief in excess of $12 billion. The trade secret lawsuit involves the so-called “reverse flow” cooling system employed on GM’s Gen II (LT1) engine, which was first introduced on the 1992 Corvette and later used on other rear wheel drive passenger cars. The Gen II engine has since been replaced by the Gen III engine, which utilizes a conventional cooling system not involved in the litigation (although plaintiffs may seek to expand the case to encompass the Gen III engine on remand). GM intends to vigorously defend this case on re-trial.
* * * * * * *
Item 4. Submission of Matters to a Vote of Security Holders
      None

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Item 4A. Executive Officers of the Registrant
      The names and ages, as of March 15, 2006, of all executive officers of General Motors and their positions and offices with General Motors are as follows:
     
Name and (Age)   Positions and Offices
     
G. Richard Wagoner, Jr. (53)
  Chairman and Chief Executive Officer
John M. Devine (61)
  Vice Chairman
Frederick A. Henderson (47)
  Vice Chairman and Chief Financial Officer
Robert A. Lutz (74)
  Vice Chairman Global Product Development
Thomas A. Gottschalk (63)
  Executive Vice President — Law and Public Policy, and General Counsel
      The following information pertains to all other officers of General Motors who file reports pursuant to Section 16(b) of the Exchange Act:
     
Name and (Age)   Positions and Offices
     
Troy A. Clarke (50)
  Group Vice President and President, GM Asia Pacific
Gary L. Cowger (58)
  Group Vice President, Global Manufacturing and Labor Relations
Eric A. Feldstein (46)
  Group Vice President and Chairman, General Motors Acceptance Corporation
Carl-Peter Forster (51)
  Group Vice President and President, GM Europe
Maureen Kempston Darkes (57)
  Group Vice President and President, GM Latin America, Africa and Middle East
Thomas G. Stephens (57)
  Group Vice President, GM Powertrain
Ralph J. Szygenda (57)
  Group Vice President and Chief Information Officer
Bo I. Andersson (50)
  Vice President, Global Purchasing and Supply Chain
Kathleen S. Barclay (50)
  Vice President, Global Human Resources
Lawrence D. Burns (54)
  Vice President, Research & Development and Strategic Planning
Steven J. Harris (60)
  Vice President, Global Communications
Peter R. Bible (47)
  Chief Accounting Officer
Walter G. Borst (44)
  Treasurer
Paul W. Schmidt (61)
  Controller
      There are no family relationships, as defined in Item 401 of Regulation S-K, between any of the officers named above, and there is no arrangement or understanding between any of the officers named above and any other person pursuant to which he or she was selected as an officer. Each of the officers named above was elected by the Board of Directors or a Committee of the Board to hold office until the next annual election of officers and until his or her successor is elected and qualified or until his or her earlier resignation or removal. The Board of Directors elects the officers in conjunction with each annual meeting of the stockholders and may appoint other officers between annual meetings.
      G. Richard Wagoner, Jr. has been associated with General Motors since 1977. In October 1998, he was elected a director, President and Chief Operating Officer of General Motors. On June 1, 2000, Mr. Wagoner

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Executive Officers of the Registrant — (continued)
was named Chief Executive Officer and became Chairman of the Board of Directors on May 1, 2003. He is currently a director of GMAC.
      John M. Devine was named Vice Chairman and Chief Financial Officer of General Motors, effective January 1, 2001. He relinquished the title of chief financial officer in January 2006, but he continues to serve as Vice Chairman, focusing on implementing the Corporation’s North America turnaround plan and other strategic issues. Mr. Devine was Chairman and Chief Executive Officer of Fluid Ventures, LLC, immediately prior to his GM appointment.
      Frederick A. Henderson became Vice Chairman and Chief Financial Officer for General Motors on January 1, 2006. Prior to his promotion, Henderson was a GM Group Vice President and Chairman of GME. Mr. Henderson has been associated with General Motors since 1984, and from June 1, 2000 he served as Group Vice President and President of GMLAAM. He was named GM Group Vice President and President of GMAP effective January 1, 2002. Effective June 1, 2004, he was appointed Group Vice President and President of GME. He is currently a director of GMAC.
      Robert A. Lutz was named Vice Chairman Product Development of General Motors, effective September 1, 2001. He was named Chairman of GMNA on November 13, 2001, and served in that capacity until April 4, 2005, when he assumed responsibility for Global Product Development. He also served as president of GME on an interim basis from March to June 2004.
      Thomas A. Gottschalk has been associated with General Motors since 1994. He previously held the position of Senior Vice President and General Counsel. He was elected to the position of Executive Vice President of General Motors with primary responsibility for Law and Public Policy on May 25, 2001. He retains the General Counsel responsibility in his current position and is also responsible for the Office of the Secretary.
      Troy A. Clarke was appointed Group Vice President and Executive Vice President, GMAP on February 4, 2004, and President of GMAP, effective June 1, 2004. Mr. Clarke was named GM Group Vice President of Manufacturing and Labor Relations in June 2002, and had been Vice President of Labor Relations since January 2001.
      Gary L. Cowger was appointed Group Vice President of Global Manufacturing and Labor Relations in April 2005 and had previously been president of GMNA since November 13, 2001. He has been associated with General Motors since 1965. Mr. Cowger became Group Vice President in charge of GM Manufacturing and Labor Relations on January 1, 2001. He was named GM Group Vice President and President of GMNA on November 13, 2001.
      Eric A. Feldstein has been associated with General Motors since 1981. Mr. Feldstein was named GM Vice President and Treasurer in 1997 and GM Vice President of Finance and Treasurer in 2001. He was named GM Group Vice President and Chairman of GMAC in November 2002.
      Carl-Peter Forster has been GM Vice President and President of GME since June 2004 and was appointed GM Group Vice President effective January 1, 2006. Mr. Forster was Chairman and Managing Director of Adam Opel AG from April 2001, and before that date he was responsible for vehicle development projects for BMW AG.
      Maureen Kempston-Darkes has been associated with General Motors since 1975. She was named GM Group Vice President and President of GMLAAM effective January 1, 2002. She is a member of the board of directors of Falconbridge Limited, Thomson Corporation, and the Canadian National Railway.
      Thomas G. Stephens is the Group Vice President responsible for GM Powertrain. He was appointed Vice President of Vehicle Integration in January 2001 and held this position prior to being named Group Vice President for GM Powertrain in 2001.

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Executive Officers of the Registrant — (concluded)
      Ralph J. Szygenda was named Group Vice President and Chief Information Officer on January 7, 2000. Mr. Szygenda is a member of the board of directors of the Handleman Company. He has been associated with GM since 1996.
      Bo I. Andersson began his career with GM in 1987. He was appointed GM Vice President, Worldwide Purchasing, Production Control and Logistics on December 1, 2001 and GM Vice President, Global Purchasing and Supply Chain on March 1, 2005.
      Kathleen S. Barclay has been associated with General Motors since 1985 and has been Vice President in charge of Global Human Resources since 1998.
      Lawrence D. Burns has been associated with General Motors since 1969 and has been Vice President of Research & Development and Strategic Planning since 1998.
      Steven J. Harris was elected General Motors Vice President in charge of Global Communications February 1, 2006, when he returned to the Corporation from retirement. He previously served as Vice President of GM Communications from 1999 until his retirement on January 1, 2004.
      Peter R. Bible joined General Motors as Chief Accounting Officer in December 1996.
      Walter G. Borst has been associated with General Motors since 1980. He was named Treasurer in February 2003. Prior to that, Mr. Borst was Executive Director of Finance and Chief Financial Officer for GM’s German subsidiary, Adam Opel AG, since October 2000. He is currently a director of GMAC.
      Paul W. Schmidt has been associated with General Motors since 1969. He was named Controller in 2002. Mr. Schmidt had been executive-in-charge of GM’s investor relations since August 2001. Prior to that, he was executive-in-charge of GMNA Finance since 1994. Mr. Schmidt is a member of the board of directors of Lennox Corporation.

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PART II
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters
      General Motors lists its common stock on the stock exchanges specified on the cover page of this Form 10-K under the trading symbol “GM”.
      As of December 31, 2005, there were 384,375 holders of record of GM $12/3 par value common stock. As of December 31, 2004, there were 405,272 holders of record of GM $12/3 par value common stock. The following table sets forth the high and low sale prices of GM’s $12/3 par value common stock and the quarterly dividends declared for the last two years.
                                   
    2005 Quarters
     
    1st   2nd   3rd   4th
                 
Cash dividends per share of common stock $12/3 par value
  $ 0.50     $ 0.50     $ 0.50     $ 0.50  
Price range of common stock $12/3 par value(1): High
  $ 40.80     $ 36.65     $ 37.70     $ 31.50  
 
Low
  $ 27.98     $ 24.67     $ 30.21     $ 18.33  
                                   
    2004 Quarters
     
    1st   2nd   3rd   4th
                 
Cash dividends per share of common stock $12/3 par value
  $ 0.50     $ 0.50     $ 0.50     $ 0.50  
Price range of common stock $12/3 par value(1): High
  $ 55.55     $ 50.04     $ 46.93     $ 43.29  
 
Low
  $ 44.72     $ 42.88     $ 40.53     $ 36.90  
 
(1)  New York Stock Exchange composite interday prices as listed in the price history database available at www.NYSEnet.com.
      On February 6, 2006, GM’s Board of Directors declared a quarterly cash dividend of $0.25 per share, representing a reduction from the quarterly rate of $0.50 per share that had been followed since the first quarter of 1997. GM’s Dividend Policy is described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section below.
      The table below contains information about securities authorized for issuance under equity compensation plans. The features of these plans are described further in Note 24 to the Consolidated Financial Statements in Part II.
                           
    Number of Securities       Number of Securities
    to be Issued upon   Weighted Average   Remaining Available for
    Exercise of   Exercise Price of   Future Issuance under
    Outstanding Options,   Outstanding Options,   Equity Compensation
Plan Category   Warrants and Rights   Warrants and Rights   Plans(1)
             
Equity compensation plans approved by security holders:
                       
 
General Motors Amended Stock Incentive Plan (GMSIP)
    84,130,586     $ 53.11       4,901,267  
Equity compensation plans not approved by security holders(2):
                       
 
General Motors 1998 Salaried Stock Option Plan (GMSSOP)
    27,213,635     $ 55.19       771,326  
                   
Total
    111,344,221     $ 53.62       5,672,593  
                   

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Market for the Registrant’s Common Equity and Related Stockholder Matters — (concluded)
 
(1)  Excludes securities reflected in the first column, “Number of securities to be issued upon exercise of outstanding options, warrants and rights.”
 
(2)  All equity compensation plans except the GMSSOP were approved by the stockholders. The GMSSOP was adopted by the Board of Directors in 1998 and expires December 31, 2007. The purpose of the plans is to recognize the importance and contribution of GM employees in the creation of stockholder value, to further align compensation with business success and to provide employees with the opportunity for long-term capital accumulation through the grant of options to acquire shares of General Motors common stock.
Purchases of Equity Securities
      GM made no purchases of GM $12/3 par value common stock during the three months ended December 31, 2005.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Item 6. Selected Financial Data
                                           
    Years Ended December 31
     
    2005   2004   2003   2002   2001
                     
    (Dollars in millions except per share amounts)
Total net sales and revenues
  $ 192,604     $ 193,517     $ 185,837     $ 177,867     $ 169,051  
                               
Income (loss) from continuing operations
  $ (10,458 )   $ 2,804     $ 2,899     $ 1,813     $ 1,041  
(Loss) from discontinued operations
                (219 )     (239 )     (621 )
Gain from sale of discontinued operations
                1,179              
Cumulative effect of accounting change
    (109 )                        
                               
 
Net income (loss)(1)
  $ (10,567 )   $ 2,804     $ 3,859     $ 1,574     $ 420  
                               
$12/3 par value common stock
                                       
 
Basic earnings (losses) per share from continuing operations before cumulative effect of accounting change
  $ (18.50 )   $ 4.97     $ 5.17     $ 3.24     $ 1.89  
 
Basic earnings (losses) per share from discontinued operations
              $ 2.14     $ (0.16 )   $ (0.42 )
 
Basic (losses) per share from cumulative effect of accounting change
  $ (0.19 )                        
 
Diluted earnings (losses) per share from continuing operations before cumulative effect of accounting change
  $ (18.50 )   $ 4.94     $ 5.09     $ 3.23     $ 1.87  
 
Diluted earnings (losses) per share from discontinued operations
              $ 2.11     $ (0.16 )   $ (0.43 )
 
Diluted (loss) per share from cumulative effect of accounting change
  $ (0.19 )                        
 
Cash dividends declared per share
  $ 2.00     $ 2.00     $ 2.00     $ 2.00     $ 2.00  
GM’s Class H common stock(2)
                                       
 
Basic earnings (losses) per share from discontinued operations
  $     $     $ (0.22 )   $ (0.21 )   $ (0.55 )
 
Diluted earnings (losses) per share from discontinued operations
  $     $     $ (0.22 )   $ (0.21 )   $ (0.55 )
 
Cash dividends declared per share
  $     $     $     $     $  
Total assets
  $ 476,078     $ 479,921     $ 448,819     $ 369,346     $ 322,637  
Notes and loans payable
  $ 285,750     $ 300,279     $ 271,756     $ 200,168     $ 165,361  
Stockholders’ equity
  $ 14,597     $ 27,360     $ 24,903     $ 6,412     $ 19,467  
      Reference should be made to the notes to GM’s consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.
      This selected financial data should also be read in conjunction with Part II, Item 6 (Selected Financial Data), Item 7 (MD&A) and Item 8 (Financial Statements and Supplementary Data) of the GMAC Annual Report on Form 10-K for the period ended December 31, 2005, filed separately with the SEC, which is incorporated into this document by reference.
(1)  On January 1, 2002, the Corporation implemented Statement of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangible Assets,” which ceased the amortization method of accounting for goodwill and changed to an impairment only approach. Accordingly, goodwill is no longer amortized and is tested for impairment at least annually. Effective January 1, 2003, the Corporation

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Selected Financial Data — (concluded)
began expensing the fair market value of newly granted stock options and other stock-based compensation awards issued to employees to conform to SFAS No. 123, “Accounting for Stock-Based Compensation.” Effective July 1, 2003, the Corporation began consolidating certain variable interest entities to conform to FASB Interpretation No. (FIN) 46, “Consolidation of Variable Interest Entities.” As of December 31, 2005, the Corporation recorded a pre-tax asset retirement obligation of $181 million in accordance with the requirements of FIN 47 “Accounting for Conditional Asset Retirement Obligations.” The cumulative effect on net loss, net of related income tax effects, of recording the asset retirement obligations was $109 million or $0.19 per share.
 
(2)  Effective December 22, 2003, GM split off Hughes by distributing Hughes common stock to the holders of GM Class H common stock in exchange for all outstanding shares of GM Class H common stock. Simultaneously, GM sold its 19.8% retained economic interest in Hughes to News Corporation in exchange for cash and News Corporation Preferred ADSs. All shares of GM Class H common stock were then cancelled. See Note 2 to the Consolidated Financial Statements.
* * * *

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
      GM is primarily engaged in automotive production and marketing and financing and insurance operations. GM designs, manufactures, and markets vehicles worldwide, having its largest operating presence in North America. GM’s finance and insurance operations primarily relate to General Motors Acceptance Corporation (GMAC), a wholly owned subsidiary of GM, which provides a broad range of financial services, including automotive finance and mortgage products and services.
Automotive Industry
      In 2005, global industry vehicle sales to retail and fleet customers were 64.7 million units, representing a 3.7% increase over 2004. We expect industry sales to be between 65.5 million and 66 million units in 2006. GM’s worldwide vehicle sales for 2005 were 9.2 million units compared to 9.0 million units in 2004. This represents a global market share of 14.2% for 2005, down slightly from GM’s 2004 global market share of 14.4%. In 2005, GM posted market share gains in three of its four automotive regions, with the exception of GM North America (GMNA) where GM’s market share declined. Over the past five years, the global automotive industry has experienced consistent year-to-year increases, growing approximately 13% from 2001 to 2005. Much of this growth is attributable to the continued development of emerging markets such as China.
      In the United States, where GM has its largest presence, 2005 industry vehicle sales totaled 17.5 million units, representing a slight increase from the 2004 U.S. sales level of 17.3 million units. While the U.S. industry has experienced annual sales volumes of approximately 17 million units for the past eight years, management believes that competition among automotive manufacturers involving price, incentive promotions, and financing offers has been a very important factor in maintaining this level of industry sales. GM’s market share in the United States was 25.9% for 2005, down from 27.2% in 2004, due in part to declines in sales of full-size utilities, mid sized utilities and mid sized cars.
      The overall U.S. industry-wide proportion of light trucks as a percentage of total U.S. vehicle sales has continued to increase over the past several decades. Light trucks include all pickups, vans, utilities, and cross over utilities derived from car platforms. In 1981, light trucks accounted for only 19% of the overall U.S. vehicle market. By 1999, light trucks had surpassed cars to take over 50% of the market for the first time. Despite the negative influence of fuel prices, in 2005 light trucks, including the growing segment of cross over vehicles, still accounted for 56% of the U.S. vehicle market, compared to 56% and 55% respectively in 2004 and 2003.
Financial Results
      GM’s consolidated net sales and revenues fell to $192.6 billion in 2005 from $193.5 billion in 2004. GM incurred a consolidated net loss in 2005 of $10.6 billion, compared to net income of $2.8 billion in 2004. The unfavorable results were driven primarily by losses at GMNA. GMAC’s net income in 2005 declined to $2.4 billion, compared to $3.0 billion in 2004.
      GM’s results of operations in 2005 were most significantly affected by the following trends and significant events:
GMNA Market Share and Product Mix
      While industry-wide North American vehicle sales grew slightly, GMNA’s vehicle production declined 7% in 2005 to 4.9 million units due in part to GM’s efforts to reduce high dealer inventory levels, and its market share decreased by 1.2 percentage points. Compounding this decline in volumes was the effect of unfavorable product mix, whereby GM had fewer sales of higher margin large trucks and large cars, due to a combination of volatility of consumer demand and the anticipated introduction of new truck models to replace products at the end of their lifecycles.

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Financial Results  — (concluded)
Delphi Chapter 11 Proceedings
      For the fourth quarter of 2005, GM recorded a charge of $5.5 billion ($3.6 billion after tax) as an estimate of contingent exposures relating to the Chapter 11 filing of Delphi Corporation (Delphi), including under the benefit guarantees for certain former GM U.S. employees who transferred to Delphi in connection with its 1999 spin-off from GM. GM believes that the range of these contingent exposures is between $5.5 billion and $12 billion, with amounts near the low end of the range considered more possible than amounts near the high end of the range assuming an agreement is reached among GM, Delphi, and Delphi’s unions. These views reflect GM’s current assessment that it is unlikely that a Chapter 11 process will result in both a termination of Delphi’s pension plan and complete elimination of its OPEB plans.
GMNA Restructuring and Global Asset Impairments
      As a result of the North American manufacturing restructuring actions announced in November 2005, GM recorded an after-tax charge of $1.7 billion. This charge includes $1.2 billion associated with the employees and $455 million for the non-cash write-down of property, plants and equipment that we currently believe are likely to be impacted by the actions. The employee costs represent our best estimate of the wage and benefits costs that we will incur for qualified employees under the JOBS bank provisions of the current labor agreement through the date of its expiration in September 2007, plus estimated costs to be paid thereafter. We have been discussing these provisions with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) in an effort to develop an agreed upon accelerated attrition program that, among other things, would not require or entitle participants to also be eligible for the JOBS bank. As part of these discussions, on March 22, 2006, GM, Delphi and the UAW reached a tentative agreement intended to reduce the number of U.S. hourly employees through an accelerated attrition program. The agreement is subject to approval by the bankruptcy court of Delphi’s participation in the agreement. If so approved, the agreement will provide for a combination of early retirement programs and other incentives designed to help reduce employment levels at GM, which may have the effect of reducing the number of employees that are or will be in the JOBS bank. This attrition program is expected to result in additional charges being recorded in 2006 as employees at locations that were not included in the North American manufacturing restructuring actions announced in November 2005 agree to participate. Under the agreement, GM and the UAW also agreed to discuss other options to address remaining surplus people at specific locations and all areas in which GM and the UAW can work together to close GM’s competitive gap with its foreign competition and reduce GM’s structural costs.
      In addition, GM’s results reflect the write-down of the Corporation’s investment in Fuji Heavy Industries, Ltd. (FHI) of $717 million after tax (considering the original impairment of $788 million and a gain on sale of $71 million due to the appreciation of the stock following the write-down). Furthermore, GM recorded after-tax charges of $872 million for plant and facility asset impairments within its automotive regions.
Health-Care Cost Escalation
      Health care in the United States is one of our biggest competitive challenges, and if we do not make progress on structurally fixing this issue, it could be a long-term threat to our company. In 2005, GM was challenged with the compound impact of escalating health-care cost rates and falling discount rates used to determine future health-care liabilities. As a result of these factors, in 2005, GM’s U.S. other postretirement employee benefits (OPEB) expense, consisting of retiree health care and life insurance, increased to $5.3 billion, an increase of more than $1 billion from 2004.
Strategy
      The size of GM’s 2005 loss, most of which related to its North American operations, clearly demonstrates the need for significant changes in GM’s business model. A large part of these losses arise from GM’s huge legacy cost burden and the difficulty of adjusting structural costs in line with falling revenue. Legacy costs are

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     Strategy — (continued)
primarily related to the cost of benefits provided to retired employees and their dependents, and costs associated with employees and their dependents of businesses divested by GM. Structural costs are those costs that do not vary with production and include all costs other than material, freight, and policy and warranty costs. Structural costs include, among other things, the cost of unionized employees.
      The top priority for GM is to return its North American operations to profitability and positive cash flow as soon as possible. GM has been systematically and aggressively implementing its four-point turnaround plan for GMNA’s business. The four elements of this plan include:
  •  Product Excellence — continue to raise the bar in the execution of great cars and trucks
 
  •  Revitalize Sales and Marketing Strategy — offer customers the best value in the industry
 
  •  Accelerate Cost Reductions and Quality Improvements — improve GM’s cost position and reduce our breakeven point in response to an intensely competitive environment
 
  •  Address Health Care Burden — reduce legacy cost disadvantages
      To date GM has been focusing on restructuring its operations, and has already taken a number of steps to improve its performance in a more competitive global environment. A key driver of these efforts is the globalization of our principal business functions, including more aggressive engineering, product development, manufacturing and purchasing. In addition, we backed up our commitment to great cars and trucks by raising our related capital expenditures in 2005, and we intend to maintain this commitment going forward. We are endeavoring to revitalize our sales and marketing strategy to more clearly focus customer recognition on our brands, align our distribution channels, and refocus our marketing efforts on the quality of our cars and trucks and the value they offer in price, features and performance.
      In the health-care area, GM announced in October 2005 a historic agreement with the UAW that will, among other things, reduce its health-care obligations for retired hourly employees. In February 2006, GM announced it would increase the U.S. salaried workforce’s participation in the cost of health care, capping GM’s contributions to salaried retiree health care at the level of 2006 expenditures. In March 2006, GM announced the details of its plan to substantially alter the pension benefits for current U.S. salaried employees, under which GM will freeze accrued benefits in the current plan and implement a reduced defined benefit plan for some salaried employees and a new defined contribution plan for the other salaried employees.
      As mentioned above, GM announced a North American restructuring plan in November 2005 that will impact multiple manufacturing facilities. This GMNA restructuring initiative will reduce excess capacity by one million units and will reduce manufacturing employment levels by approximately 30,000 employees. As a result of this initiative and other cost reduction actions, we currently expect to reduce structural costs in North America by an average of $7 billion per year on a running rate basis by the end of 2006 and to reduce net material costs by $1 billion in 2006. We expect $4 billion of the structural cost reduction to be realized during calendar year 2006. Further information about these matters may be found in the GM North American Restructuring Plan discussion starting on page II-20. GM’s objective is to reduce its global structural costs to 25% of automotive revenue by 2010, down from its current level of approximately 34%. In order to achieve this objective, we need to go beyond the GMNA turnaround plan and accomplish capacity rationalization and other efficiency measures on a global basis.
      Our management believes that the four elements of the GMNA turnaround plan, as well as global benchmarking of best competitive practices for major automotive processes and GM’s economy of scale, make this 25% global structural cost reduction target a realistic objective. We believe that managing our business on a global, functional basis will enable us to leverage product development spending, consolidate our brand structure, share best practices throughout the Corporation, and optimize our manufacturing, supply and engineering footprint. Accomplishing this structural cost reduction is critical to GM’s future success.

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     Strategy — (concluded)
      In addition to the GMNA turnaround activities, GM plans to continue to address other important strategic issues, including:
  •  The bankruptcy of our largest supplier, Delphi. This situation presents significant risks to GM, including disruption in the supply of automotive systems, components, and parts, GM receiving only a portion of amounts owed by Delphi to GM, and obligations in excess of amounts recognized by GM in 2005 in connection with benefit guarantees. This situation also presents opportunities for GM, including reducing, over the long term, the significant cost penalty GM incurs in obtaining parts from Delphi, as well as improving the quality of systems, components and parts GM procures from Delphi as a result of the restructuring of Delphi through the Chapter 11 process.
 
  •  The pursuit of a possible sale of a controlling interest in GMAC with the goal of delinking GMAC’s credit rating from GM’s credit rating and renewing GMAC’s access to low cost financing, and the exploration of strategic and structural alternatives for ResCap.
 
  •  Negotiations with the UAW in connection with the expiration of our collective bargaining agreement in September 2007.
 
  •  Restructuring initiatives in other areas, including Brazil, Europe, and Australia.
      GM believes that it has sufficient balance sheet strength to fund its short- and medium-term cash needs and implement its four-point turnaround plan and other strategic objectives under reasonably foreseeable circumstances. Over the long term, we believe that GM’s ability to meet its capital requirements will primarily depend on its successful execution of its four-point turnaround plan and the return of its North American operations to profitability and positive cash flow, and its ability to execute the globalization of its principal business functions.
      As of December 31, 2005, GM’s Automotive and Other operations had cash, marketable securities, and readily available assets of the Voluntary Employees’ Beneficiary Association (VEBA) trust totaling $20.4 billion, and its debt is principally long-term. We note that our cash balance varies from time to time during the calendar year and, in particular, our cash balance is generally materially lower during the third quarter as a result of product changeovers and the annual shutdown of our North American manufacturing facilities for approximately two weeks during that period. GMAC continues to maintain adequate liquidity with cash reserve balances at December 31, 2005 of $19.7 billion, including $4.2 billion in marketable securities with maturities greater than 90 days. In addition, GM has recently implemented a number of cost-cutting and cash-saving initiatives intended to help maintain adequate liquidity, including the recent reduction of its quarterly dividend from $0.50 per share to $0.25 per share. Nevertheless, there are significant risks to GM’s liquidity position, including the possibility of an extended labor dispute at Delphi, any inability to access (or amend or replace) our existing standby bank credit facility, any claims that may be successfully asserted against GM under various financing agreements in view of GM’s recent restatement of its prior financial statements, the further deterioration in GMAC’s credit rating leading to a higher cost of capital, the failure to improve our competitive position through the 2007 labor negotiations, and the payment to Delphi employees of any amounts incremental to previously announced charges for contingent exposures relating to Delphi’s Chapter 11 filing. The occurrence of any one or a combination of these events could severely threaten our liquidity position and threaten the successful implementation of our turnaround plan.
      There is uncertainty regarding our future earnings given the potential that some of these matters have to affect our earnings, both positively and negatively. We put our four-point turnaround plan in place in 2005, and we have a tremendous sense of urgency in executing the elements of the plan to the highest degree possible in 2006 and the coming years.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Business Environment
      GM views the following factors, many of which are important to the execution of GMNA’s four-point turnaround plan, as the most significant drivers of its near term financial results:
  •  Continued demand for GM’s most profitable products and the maintenance of a strong product mix;
 
  •  The introduction of innovative new products on a timely cadence, through the integration of global architectures, engineering, and procurement efforts;
 
  •  The implementation of measures for reducing structural costs, offsetting legacy and health-care burdens;
 
  •  Maintenance of sufficient balance sheet strength and liquidity; and
 
  •  Other factors affecting GM’s Financing and Insurance Operations (FIO) reportable operating segment results, including interest rates, credit ratings, and demand for mortgage financing.
      In addition to these drivers, the most significant risks to the execution of our business strategy and improved financial performance are discussed above under Risk Factors.
Basis of Presentation
      This management’s discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the GMAC Annual Report on Form 10-K for the period ended December 31, 2005, filed separately with the SEC, Part I, Item 1, (Business) and Part II, Item 6 (Selected Financial Data), Item 7 (MD&A) and Item 8 (Financial Statements and Supplementary Data) of which are incorporated into this document by reference. All earnings per share amounts included in the MD&A are reported on a fully diluted basis.
      GM presents separate supplemental financial information for its reportable operating segments: Automotive and Other Operations (Auto & Other) and Financing and Insurance Operations (FIO).
      GM’s Auto & Other reportable operating segment consists of:
  •  GM’s four automotive regions: GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific (GMAP), which constitute GM Automotive (GMA); and
 
  •  Other, which includes the elimination of intersegment transactions, certain non-segment specific revenues and expenditures, including legacy costs related to postretirement benefits for certain Delphi and other retirees, and certain corporate activities.
      GM’s FIO reportable operating segment consists of GMAC and Other Financing, which includes financing entities that are not consolidated by GMAC.
      The disaggregated financial results for GMA have been prepared using a management approach, which is consistent with the basis and manner in which GM management internally disaggregates financial information for the purpose of assisting in making internal operating decisions. In this regard, certain common expenses were allocated among regions less precisely than would be required for stand-alone financial information prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial results represent the historical information used by management for internal decision-making purposes; therefore, other data prepared to represent the way in which the business will operate in the future, or data prepared in accordance with GAAP, may be materially different.
      Consistent with industry practice, our market share information includes estimates of sales in certain countries where public reporting is not legally required or otherwise available on a consistent basis.

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Results of Operations
Consolidated Results
                           
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions)
Consolidated:
                       
 
Total net sales and revenues
  $ 192,604     $ 193,517     $ 185,837  
 
Income (loss) from continuing operations before cumulative effect of accounting change
  $ (10,458 )   $ 2,804     $ 2,899  
 
Net income
  $ (10,567 )   $ 2,804     $ 3,859  
 
Net margin from continuing operations
    (5.4 )%     1.4 %     1.6 %
Automotive and Other Operations:
                       
 
Total net sales and revenues
  $ 158,221     $ 161,545     $ 155,831  
 
Income (loss) from continuing operations before cumulative effect of accounting change
  $ (12,816 )   $ (145 )   $ 137  
 
Net income (loss)
  $ (12,925 )   $ (145 )   $ 1,097  
Financing and Insurance Operations:
                       
 
Total revenues
  $ 34,383     $ 31,972     $ 30,006  
 
Net income
  $ 2,358     $ 2,949     $ 2,762  
      Total net sales and revenues decreased in 2005, compared with 2004, primarily due to decreased GMNA revenue of $9.8 billion, largely offset by increases in GMLAAM and GMAP revenue of $3.0 billion and $3.9 billion respectively, and increases at GMAC of $2.8 billion. Total net sales and revenues increased in 2004, compared with 2003, due to increases in GMA revenue of $6.6 billion, including increases in GMLAAM and GME revenue of $3.4 billion and $3.3 billion respectively, and increases in GMAC revenue of $1.8 billion.
      Net income decreased $13.4 billion in 2005, compared to 2004, primarily driven by losses at GMNA due largely to unfavorable volume and product mix, restructuring charges, and charges for asset impairments. All other automotive regions also incurred losses in 2005. The GME loss was primarily driven by restructuring charges, offset partially by improved operating performance. The GMLAAM loss was largely attributable to a full valuation allowance taken against GM do Brasil’s deferred tax assets. The GMAP loss was mainly due to the write down of GM’s investment in FHI, as described above. GMAC’s net income declined to $2.4 billion, from $3.0 billion in 2004, primarily due to goodwill impairment charges.
      In 2004, income from continuing operations decreased $95 million to $2.8 billion, compared to 2003. Automotive results improved by $614 million due to improvement at GMNA, a strong recovery at GMLAAM, and record income at GMAP, more than offsetting increased losses at GME. Other Operations’ 2004 results include an after-tax charge of $886 million related to the February 2005 settlement reached between GM and Fiat S.p.A. (Fiat) to terminate the Master Agreement (including the Put Option) and settle various disputes between the two companies. GMAC earned a record $3.0 billion net income, due to higher financing and insurance income.
      2005 results included:
  •  Consolidated net loss of $10.6 billion, or $18.69 per share;
 
  •  Losses at all automotive regions;
 
  •  Charge recognized for announced GMNA restructuring plan;
 
  •  Charge recognized for contingent exposures relating to Delphi’s Chapter 11 filing, including under the benefit guarantees;
 
  •  Strong performance at GMAC despite challenging environment;
 
  •  Strong year-end cash position; and

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Consolidated Results — (concluded)
  •  Favorable returns on pension assets, resulting in U.S. Hourly and Salaried plans being overfunded on a Statement of Financial Accounting Standards No. 87 basis by approximately $6 billion.
      More detailed discussions on the results of operations for the automotive regions, other operations, and GMAC can be found in the following sections.
GM Automotive and Other Operations Financial Review
                             
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions)
Auto & Other:
                       
 
Total net sales and revenues
  $ 158,221     $ 161,545     $ 155,831  
 
Income (loss) from continuing operations before cumulative effect of accounting change
  $ (12,816 )   $ (145 )   $ 137  
 
(Loss) from discontinued operations
                (219 )
 
Gain on sale of discontinued operations
                1,179  
 
Cumulative effect of accounting change
    (109 )            
                   
   
Net income (loss)
  $ (12,925 )   $ (145 )   $ 1,097  
                   
GMA net income (loss) by region:
                       
 
GMNA
  $ (8,239 )   $ 1,409     $ 879  
 
GME
    (1,198 )     (925 )     (466 )
 
GMLAAM
    (571 )     60       (329 )
 
GMAP
    (220 )     730       576  
                   
   
Net income (loss)
  $ (10,228 )   $ 1,274     $ 660  
                   
 
Net margin
    (6.4 )%     0.8 %     0.4 %
 
GM global automotive market share
    14.2 %     14.4 %     14.6 %
Other:
                       
 
Income (loss) from continuing operations
  $ (2,697 )   $ (1,419 )   $ (523 )
 
(Loss) from discontinued operations
                (219 )
 
Gain on sale of discontinued operations
                1,179  
                   
   
Net income (loss)
  $ (2,697 )   $ (1,419 )   $ 437  
                   
      The decrease in 2005 total net sales and revenues, compared with 2004, resulted from decreased GMNA revenue of $9.8 billion, primarily from lower production and unfavorable product mix, largely offset by significant increases at GMLAAM and GMAP amounting to $3.0 billion and $3.9 billion respectively. The increase in 2004 total net sales and revenues, compared with 2003, was largely due to higher wholesale volumes at GMLAAM and GME and continued growth at GMAP, partially offset by lower GMNA revenue. GM’s global market share was 14.2% and 14.4% for the years 2005 and 2004, respectively. GMNA posted a 1.2 percentage point decline in market share largely as a result of sales declines within the large sport utility and pickup, mid sized utility and mid sized car segments. Market share gains were recognized in the other three automotive regions.
      GMA’s 2005 net income decreased $11.5 billion compared with 2004. Each automotive region sustained a net loss for 2005, with volume and mix unfavorable overall. In addition, the restructuring charge at GMNA noted above, other restructuring charges at GME and GMAP, and asset impairments at all regions

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review — (continued)
contributed to the poor results for the year. GMA’s 2004 net income increased $614 million compared with 2003. GMNA’s income increased due to material cost savings and favorable tax items, partially offset by decreased production and negative mix. GMAP and GMLAAM both improved over 2003, while GME’s loss for 2004 increased due to continued price pressure and unfavorable exchange rates.
      See discussion of Other Operations’ results below.
GM Automotive Regional Results
GM North America
                           
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions)
GMNA:
                       
 
Total net sales and revenues
  $ 104,755     $ 114,545     $ 116,310  
 
Net income (loss)
  $ (8,239 )   $ 1,409     $ 879  
 
Net margin
    (7.9 )%     1.2 %     0.8 %
                             
    (Volume in thousands)
Production volume
                       
 
Cars
    1,834       1,997       2,184  
 
Trucks
    3,022       3,223       3,277  
   
Total GMNA
    4,856       5,220       5,461  
Vehicle unit sales
                       
 
Industry — North America
    20,542       20,282       19,842  
 
GM as a percentage of industry
    25.5 %     26.7 %     27.4 %
 
Industry — U.S. 
    17,455       17,302       16,970  
 
GM as a percentage of industry
    25.9 %     27.2 %     28.0 %
 
GM cars
    22.6 %     24.9 %     25.7 %
 
GM trucks
    28.5 %     29.0 %     30.0 %
      North American industry vehicle unit sales increased 1.3% to 20.5 million units during 2005, and we expect unit sales to be relatively flat in 2006. Despite slight industry growth, GMNA’s production declined 7.0% to 4.9 million units as a result of the decreased market share of 1.2 percentage points along with a significant reduction of dealer inventories by approximately 200,000 units. GMNA ended the year with a market share of 25.5% for 2005, compared to 26.7% for 2004.
      During 2005, industry vehicle unit sales in the United States increased to 17.5 million units, while GM’s U.S. market share decreased by 1.3 percentage points due to sales declines in segments where GM has high volume such as large sport utilities, mid sized utilities and mid sized cars. GM ended the year with a U.S. market share of 25.9% for 2005, versus 27.2% for 2004. GM’s U.S. car market share declined by 2.3 percentage points to 22.6%, while U.S. truck market share for the year was 28.5%, down 0.5 percentage point. Truck sales represented 61% of GM’s total U.S. vehicle unit sales in 2005, up slightly from 60% in 2004.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review — (continued)
GM North America — (continued)
      Net loss from GMNA totaled $8.2 billion in 2005, compared to income of $1.4 billion and $879 million in 2004 and 2003, respectively. The deterioration in 2005 was due in part to various operating factors, including:
  •  Unfavorable product mix, which adversely affected net income by approximately $2.2 billion due primarily to reduced demand for GMNA’s large utility vehicles which were reaching the end of their product life cycle, as well as declines in sales of higher margin large cars;
 
  •  Production volume decreases of 7% attributable to GMNA market share decline and a significant reduction in dealer inventories, accounted for a decrease in net income of approximately $2.1 billion;
 
  •  Unfavorable material costs after factoring in the cost of government mandated product improvements accounted for a decrease in net income of approximately $700 million;
 
  •  Increased health-care expenses primarily due to the recognition of OPEB net actuarial losses, which are caused by escalating health care cost trends, and falling discount rates in the U.S., accounted for a decrease in net income of approximately $600 million. These 2005 health care cost increases do not reflect new health care initiatives with the UAW and salaried employees and retirees, which will benefit subsequent years; and
 
  •  Advertising and sales promotion cost increases, accounting for a decrease in net income of $500 million due to further efforts to increase product awareness.
      In addition to the above items, GMNA recognized a fourth quarter 2005 restructuring charge of $1.7 billion, after tax, as a result of the GMNA restructuring initiatives announced in the fourth quarter of 2005 (refer also to subsequent discussion in Key Factors Affecting Future Results). These initiatives represent a critical step towards reducing structural costs given the high-cost manufacturing environment in the United States. The charge of $1.7 billion included $455 million, after tax, for the non-cash writedown of property, plants and equipment, comprised of $362 million for production facilities still in service at December 31, 2005, as well as other product specific assets of $93 million. The charge also included $1.2 billion, after tax, for employee costs, representing our best estimate of the wage and benefits costs that we will incur for qualified employees under the JOBS bank provisions of the current labor agreement through the date of its expiration in September 2007, plus estimated costs expected to be paid thereafter. Approximately 17,500 employees were affected and included in the restructuring charge. We have been discussing these provisions with the UAW in an effort to develop an agreed upon accelerated attrition program by which we can reduce the number of employees that are and will be in the JOBS bank in a cost effective manner. As part of these discussions, on March 22, 2006, GM, Delphi and the UAW reached a tentative agreement intended to reduce the number of U.S. hourly employees through an accelerated attrition program. The agreement is subject to approval by the bankruptcy court of Delphi’s participation in the agreement. If so approved, the agreement will provide for a combination of early retirement programs and other incentives designed to help reduce employment levels at GM, which may have the effect of reducing the number of employees that are or will be in the JOBS bank. This attrition program is expected to result in additional charges being recorded in 2006 as employees at locations that were not included in the North American manufacturing restructuring actions announced in November 2005 agree to participate. Under the agreement, GM and the UAW also agreed to discuss other options to address remaining surplus people at specific locations and all areas in which GM and the UAW can work together to close GM’s competitive gap with its foreign competition and reduce GM’s structural costs.
      In 2005, GMNA also recognized after-tax impairment charges of $552 million. In the first quarter, GMNA recorded $84 million for the write-down to fair market value of various production facility assets ($82 million) and product specific assets ($2 million) in connection with the cessation of production at a Lansing, Michigan assembly plant. In the third quarter of 2005, as part of the business planning cycle, the carrying value of long-lived assets held and used, other than goodwill and intangible assets with indefinite lives, were compared to the projected cash flows. Based on this review, GMNA concluded that certain

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review — (continued)
GM North America — (concluded)
product-specific assets, as well as certain office and production facilities, were not recoverable. Accordingly, in the third quarter of 2005 GMNA recorded an after-tax impairment charge of $468 million for assets still in service, comprised of $421 million of product-specific assets, and $47 million related to certain office and production facilities.
      The increase in GMNA’s 2004 net income from 2003 was due in part to the effects of material cost savings and structural cost savings, partially offset by lower volume and unfavorable product mix. Additionally, 2004 net income includes the effect of GM’s contribution of approximately 11 million shares of XM Satellite Radio Holdings Inc. (XM) common stock to GM’s VEBA, which resulted in an after-tax gain to GMNA of $118 million. GMNA recognized tax benefits in 2004 of $540 million primarily as the result of U.S. and Mexico tax legislation and Canadian capital loss carryforwards, as well as a benefit related to the settlement of various prior year tax matters in the U.S. In addition, in the third quarter of 2004 GM completed its periodic review of products liability reserves, which comprehend all products liability exposure. This review resulted in an after-tax reduction to these reserves of approximately $250 million, in order to appropriately reflect the current level of exposure.
      During 2003, GMNA incurred charges of $448 million, after tax, related to the October 2003 contract with the UAW, which provided for lump-sum payments and vehicle discount vouchers for retirees. In addition, GMNA adjusted a previously established reserve for idled workers, primarily related to the Janesville, Wisconsin plant, resulting in $103 million of net income, after tax. Also, GMNA incurred various structural cost adjustments, asset impairment and other charges, favorable interest income from settlements of prior year tax matters, and income related to the market valuation of XM warrants. These items netted to approximately $90 million of income for the year.
      In the fourth quarter of 2004, GM announced plans to close its assembly plant in Baltimore, Maryland, with approximately 1,000 employees, and to lay off approximately 950 employees at GM’s assembly plant in Linden, New Jersey. In connection with these actions, GMNA recognized after-tax charges totaling $78 million in 2004 for impairment of production facilities. In addition, GMNA incurred after-tax charges in 2004 of $55 million for impairment of facilities not related to these actions, and $63 million for impairments of other product-specific assets. There were no employee idling or separation costs in conjunction with these impairments, since at the time it was believed employees would be redeployed.
      In the fourth quarter of 2005, GMNA announced a four-point turnaround plan focused on improving results, and addressing factors contributing to the loss items described above. The top priority for the Corporation is to return GMNA’s operations to profitability and positive cash flow as soon as possible, via the systematic and aggressive implementation of our four-point turnaround plan. This plan is discussed in detail in the GM North American Restructuring Plan section of Key Factors Affecting Future Results found on page II-20.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review — (continued)
GM Europe
                         
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions)
GME total net sales and revenues
  $ 31,719     $ 30,820     $ 27,478  
GME net (loss)
  $ (1,198 )   $ (925 )   $ (466 )
GME net margin
    (3.8 )%     (3.0 )%     (1.7 )%
                           
    (Volume in thousands)
Production volume(1)
    1,858       1,829       1,818  
Vehicle unit sales
                       
 
Industry
    20,970       20,763       19,588  
 
GM as a percentage of industry
    9.5 %     9.4 %     9.3 %
GM market share — Germany
    10.8 %     10.6 %     10.4 %
GM market share — United Kingdom
    14.7 %     13.9 %     13.7 %
 
(1)  2004 and 2005 calendar years include GM-Avtovaz joint venture production
      Industry vehicle unit sales in Europe increased slightly in 2005, by 1.0% over 2004, and GME’s total market share increased slightly to 9.5% from 9.4%. European industry vehicle unit sales are expected to be relatively flat in 2006. In the two largest markets in Europe, GM continued to increase market share: market share was 10.8% in Germany, a 0.2 percentage point increase over 2004; and in the United Kingdom market share was 14.7%, an increase of 0.8 percentage point over 2004.
      Net loss from GME totaled $1.2 billion, $925 million, and $466 million, in 2005, 2004, and 2003, respectively. The increase in GME’s loss in 2005 over 2004 was due in part to the following factors:
  •  Restructuring charges totaling $673 million in connection with the restructuring plan announced in the fourth quarter of 2004, as well as costs related to the dissolution of GM’s powertrain and purchasing joint ventures with Fiat. The restructuring plan involves a reduction in workforce of up to 12,000 through 2007, largely in manufacturing operations in Germany. In December 2004, GM reached agreement with various labor unions in Europe on a framework for the restructuring plan. The charges in 2005 related to the separation of approximately 7,500 people. No charge was recognized in 2004 because the agreements were not yet finalized.
 
  •  Favorable material cost, structural costs, and product mix, which more than offset pricing and volume declines, resulting in an almost $370 million improvement in year over year performance.
      In addition to the above items, GME recorded charges for impairment of product specific assets of $176 million and $234 million in 2005 and 2004, respectively. These charges were identified as part of the business planning cycles in the third quarter of 2005 and the fourth quarter of 2004, during which the carrying value of long-lived assets held and used, other than goodwill and intangible assets with indefinite lives, was determined to exceed the projected cash flows.
      The increase in GME’s loss in 2004 over 2003 was primarily due to continued negative pricing and unfavorable exchange rates with respect to the weakening of the U.S. dollar compared to the euro and Swedish krona, partially offset by favorable volume and mix, material cost savings and reduced structural costs. In addition, in 2004 GME’s net loss included an after-tax charge of $234 million for the impairment of various product-specific assets.
      We have implemented a GME turnaround plan, which remains on track, and we expect to see more progress in 2006. In addition to the continued implementation of our significant cost reduction initiatives, we

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review — (continued)
GM Europe — (concluded)
expect to benefit from the introduction of new products such as the Opel Corsa and will continue to focus on the rollout of our multibrand strategy and particularly efforts to expand the Chevrolet brand.
GM Latin America/ Africa/ Mid-East
                         
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions)
GMLAAM total net sales and revenues
  $ 11,745     $ 8,792     $ 5,387  
GMLAAM net income (loss)
  $ (571 )   $ 60     $ (329 )
GMLAAM net margin
    (4.9 )%     0.7 %     (6.1 )%
                           
    (Volume in thousands)
Production volume
    775       716       547  
Vehicle unit sales
                       
 
Industry
    4,980       4,225       3,626  
 
GM as a percentage of industry
    17.7 %     17.5 %     16.1 %
GM market share — Brazil
    21.3 %     23.1 %     23.3 %
      Improving economic conditions in Latin America resulted in significant industry growth in 2005, with the markets in Venezuela and Argentina increasing by approximately 70% and 34%, respectively. Brazil’s market grew more than 8% in 2005 compared to 10% in 2004. In addition, the South Africa market grew more than 25% in 2005 compared to 20% in 2004. We anticipate regional industry sales will show slower growth during 2006; however, growth should still remain positive. GMLAAM improved its regional market share by 0.2 percentage points to 17.7% in 2005 with a 19% increase in vehicle unit sales, to 881 thousand from 738 thousand in 2004.
      In 2005, GMLAAM net sales and revenues improved by approximately 34% or about $3.0 billion compared to 2004. Improved volume and mix contributed $1.8 billion while favorable exchange rates and pricing contributed $0.9 billion and $0.3 billion, respectively. The 2004 increase in net sales and revenues of 63% or $3.4 billion over 2003 results is attributable to volume and mix related improvements of $1.7 billion, acquisition of the remaining interest in Delta Motors totaling $1.0 billion, and favorable exchange rates and pricing of $0.2 billion and $0.5 billion, respectively.
      Net (loss) income from GMLAAM totaled $(571) million, $60 million, and $(329) million in 2005, 2004, and 2003, respectively. The deterioration in GMLAAM’s 2005 results compared to 2004 was due in part to the following factors:
  •  A full valuation allowance charge of $617 million taken against GM do Brasil’s deferred tax assets as it was determined that it is more likely than not that deferred taxes in GM’s Brazilian operations would not be realized; and
 
  •  Volume, product mix, and pricing improvements which exceeded losses from unfavorable exchange rate changes, primarily with respect to the Brazilian real, by approximately $40 million from 2004 to 2005.
      In addition to the above items, the 2005 results include third quarter impairment charges of $99 million for assets still in service, determined by comparing projected cash flows to the book value of specific product-related assets and production facilities. Charges included $52 million, after tax, for product-specific assets, and $47 million, after tax, for production facilities. Unusually strong South American currencies have impacted

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review — (continued)
GM Latin America/ Africa/ Mid-East — (concluded)
the profitability of GMLAAM’s export business. Management’s decision to adjust export volumes resulted in lower future cash flows triggering the impairment charge.
      In 2004, favorable volume and mix and positive pricing, partially offset by increased material and structural costs, drove improved results. In 2003, GMLAAM incurred asset impairment charges and unfavorable exchange effects, which were partially offset by net price increases.
      Effective January 1, 2004, GM increased its ownership of Delta Motor Co. in South Africa to 100%, from 49% previously, moving from the equity method of accounting to full consolidation. The company is now known as General Motors South Africa.
      Our focus for GMLAAM in 2006 is to continue to leverage our position in South Africa, accelerate our turnaround program in Brazil, and build on our strong performance in the Middle East and Andean region countries.
GM Asia Pacific
                         
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions)
GMAP total net sales and revenues
  $ 10,893     $ 6,978     $ 5,338  
GMAP net income (loss)
  $ (220 )   $ 730     $ 576  
GMAP net margin
    (2.0 )%     10.5 %     10.8 %
                           
    (Volume in thousands)
Production volume(1)
    1,562       1,333       420  
Vehicle unit sales
                       
 
Industry
    18,240       17,156       15,919  
 
GM as a percentage of industry
    5.8 %     5.2 %     4.9 %
GM market share — Australia
    17.8 %     19.4 %     20.4 %
GM market share — China
    11.2 %     9.4 %     8.5 %
 
(1)  2004 and 2005 calendar years include GM Daewoo and Wuling joint venture production
      Industry vehicle unit sales in the Asia Pacific region increased approximately 6.3% in 2005, to 18.2 million units, from 17.2 million units in 2004. This reflects slower growth in China than in previous years, where vehicle unit sales increased 13.2% to 5.9 million units in 2005, from 5.2 million units in 2004. During 2004 industry vehicle unit sales in China increased 15% over 2003 levels. We anticipate that the Asia Pacific region will remain the fastest growing automotive region in 2006, continuing its role as real catalyst for growth in automotive sales globally. GMAP increased its vehicle unit sales (including GM Daewoo Auto & Technology Company (GM Daewoo, formerly referred to as GM-DAT) and China affiliates) in the Asia Pacific region by 20% in the period, to 1.1 million units from 887 thousand in 2004. GMAP’s 2005 market share was 5.8%, compared to 5.2% in 2004. GMAP’s market share in China increased 1.8 percentage points to 11.2% in 2005, and China was GM’s second largest market for 2005.
      Net income (loss) from GMAP totaled $(220) million, $730 million, and $576 million, in 2005, 2004, and 2003, respectively. The deterioration in GMAP’s 2005 results compared to 2004 was due in part to the following factors:
  •  Write-down of GM’s investment in FHI in the second quarter for $788 million, after-tax, as a result of FHI’s declining financial performance and the downward adjustments in their business plan in May

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review — (concluded)
GM Asia Pacific — (concluded)
  2005. This writedown was partially offset in the fourth quarter, when GM completed the sale of its investment in the common stock of FHI and recorded a gain of $71 million (after tax) due to the appreciation of the fair value of such stock after June 30, 2005, the date of the FHI impairment charge; and
 
  •  Volume and product mix at GM Holden in Australia, as well as reduced equity income from higher costs associated with GM’s growth initiatives in China, were partially offset by favorable results from GM Daewoo, resulting in a decrease in net income of approximately $200 million from 2004 to 2005.
      In addition to the above items, in the third quarter of 2005 GMAP recognized asset impairment charges of $45 million, after tax, for assets still in service at GM Holden, determined by comparing projected cash flows to the book value of assets. The charges were comprised of $23 million for product-specific assets and $22 million related to production facilities. In the fourth quarter of 2005, GMAP recognized $38 million of separation costs associated with restructuring activities that resulted in the idling of approximately 1,200 employees.
      The increase in GMAP’s 2004 net income over 2003 was due to improved results at equity investees in Japan and GM Daewoo, as well as improved earnings at GM operations in Thailand and India, partially offset by reduced income at GM Holden.
      In 2006, GMAP will continue to take advantage of the strong position and growth in China, leverage its capabilities at GM Daewoo, and execute the turnaround at GM’s Holden unit.
Other Operations
                           
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions)
Other:
                       
 
Total net sales, revenues, and eliminations
  $ (891 )   $ 410     $ 1,318  
 
Income (loss) from continuing operations
  $ (2,697 )   $ (1,419 )   $ (523 )
 
(Loss) from discontinued operations
                (219 )
 
Gain from sale of discontinued operations
                1,179  
                   
 
Net income (loss)
  $ (2,697 )   $ (1,419 )   $ 437  
                   
      Other Operations’ net loss increased $1.3 billion in 2005 compared to 2004. The 2005 total net loss is primarily due to the impact of Delphi benefit guarantee charges offset by favorable income tax items. In the fourth quarter of 2005, an after-tax charge of $3.6 billion was recorded pertaining to the contingent exposures relating to Delphi’s Chapter 11 filing, including under the benefit guarantees (see subsequent discussion in Factors Affecting Future Results).
      Income tax expense in 2005 is allocated to GM’s automotive regions based on tax rates used by management for evaluating their performance. Tax benefits realized in excess of those assigned to GMA are allocated to Other Operations, which totaled $1.6 billion in 2005.
      In December 2004, GM wrote off the remaining balance of its investment in Fiat Auto Holdings B.V. (FAH), to Other Operations’ cost of sales, resulting in an after-tax charge of $136 million. On February 13, 2005, GM and Fiat reached a settlement agreement whereby GM paid Fiat approximately $2.0 billion, returned its 10% equity interest in FAH to terminate the Master Agreement (including the Put Option) entered into in March 2000, settle various disputes related thereto, and acquire an interest in key strategic

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Other Operations — (concluded)
diesel engine assets and other important rights with respect to diesel engine technology and know-how. The settlement agreement resulted in a pre-tax charge to earnings of approximately $1.4 billion ($886 million after tax or $1.56 per fully diluted share). Since the underlying events and disputes giving rise to GM’s and Fiat’s agreement to settle these disputes and terminate the Master Agreement (including the Put Option) existed at December 31, 2004, GM recognized this charge in the fourth quarter of 2004. This charge was recorded in cost of sales and other expenses in Other Operations.
      Other Operations’ results include after-tax legacy costs of $477 million and $402 million for 2005 and 2004, respectively, related to employee benefit costs of divested businesses, primarily Delphi, for which GM has retained responsibility.
Discontinued Operations
      In December 2003, GM split off Hughes by distributing Hughes common stock to the holders of GM Class H common stock in exchange for all the outstanding shares of GM Class H common stock. Simultaneously, GM sold its 19.8% retained economic interest in Hughes to The News Corporation Ltd. (News Corporation) in exchange for cash and News Corporation Preferred American Depositary Shares.
      As of the completion of these transactions on December 22, 2003, the results of operations, cash flows, and the assets and liabilities of Hughes were classified as discontinued operations for all periods through such date presented in GM’s consolidated financial statements. The transactions resulted in an after-tax gain of approximately $1.2 billion classified as gain on sale of discontinued operations in GM’s consolidated statement of income for the year ended December 31, 2003. See Note 2 to the Consolidated Financial Statements for further discussion.
GMAC Financial Review
      GMAC’s net income was $2.4 billion, $3.0 billion, and $2.7 billion for 2005, 2004, and 2003 respectively.
                           
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions)
Financing operations
  $ 627     $ 1,430     $ 1,391  
Mortgage operations
    1,345       1,186       1,175  
Insurance operations
    411       352       162  
                   
 
Net income
  $ 2,383     $ 2,968     $ 2,728  
                   
      Net income from financing operations totaled $0.6 billion, $1.4 billion, and $1.4 billion in 2005, 2004, and 2003, respectively. The decrease in 2005 net income over 2004 was primarily due to goodwill impairment charges of $439 million, after tax, relating primarily to goodwill recognized in connection with the acquisition of GMAC’s commercial finance business, as well as lower net interest margins as a result of increased borrowing costs due to widening spreads and higher market interest rates. The decline in net interest margins was somewhat mitigated by lower consumer credit provisions, primarily as a result of lower asset levels, and the effect of improved used vehicle prices on terminating leases. The increase in 2004 net income over 2003 reflects improvement in earnings from international operations, lower credit loss provisions, improved vehicle remarketing results in North America and favorable tax items, partially offset by lower net interest margins.
      Net income from mortgage operations totaled $1.3 billion, $1.2 billion, and $1.2 billion in 2005, 2004, and 2003, respectively. The increase in 2005 net income reflects increases in both the residential and commercial mortgage operations. GMAC’s residential mortgage businesses benefited from increased loan production, favorable credit experience, improved mortgage servicing results and gains on sales of mortgages. GMAC Commercial Mortgage also experienced an increase in earnings compared to 2004 largely due to record loan origination volume, higher gains on sales of loans and increases in fee and investment income. In 2004,

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GMAC Financial Review — (concluded)
U.S. residential mortgage industry volumes declined by approximately 30% compared to 2003. However, despite the lower industry volumes, mortgage operations achieved market share gains, asset growth, improved mortgage servicing results and an increase in fee-based revenue in 2004 compared to 2003.
      Net income from insurance operations totaled a record $411 million in 2005, and $352 million and $162 million in 2004 and 2003, respectively. The increase in 2005 reflects a combination of strong results achieved through increased premium revenue, higher capital gains, and improved investment portfolio performance. In addition, GMAC Insurance maintained a strong investment portfolio, with a market value of $7.7 billion at December 31, 2005, including net unrealized gains of $573 million. At December 31, 2004, the investment portfolio was valued at $7.3 billion, with net unrealized gains of $563 million.
      As previously announced in October 2005, GM is pursuing the sale of a controlling interest in GMAC, with the goal of delinking GMAC’s credit rating from GM’s credit rating and renewing its access to low-cost financing. GM is currently in discussions with potential interested parties, and the process is ongoing. On March 23, 2006, GMAC completed the previously announced sale of a controlling interest in GMAC Commercial Mortgage.
Key Factors Affecting Future Results
      The following discussion identifies the key factors, known events, and trends that could affect our future results.
GM North America Restructuring Plan
      The size of GM’s 2005 loss, most of which is related to GMNA, clearly demonstrates the need for significant changes in GM’s business model. A large part of those losses arises from GM’s legacy cost burden and the fixed nature of much of its cost base.
      In response to these cost burdens, GM has been intently focusing, especially over the past year, on restructuring its operations to succeed in a more competitive global environment. GM has been systematically and aggressively implementing a four-point turnaround plan for GMNA’s business. The following is an update of the key elements of these plans and actions to date.
Product Excellence
      GMNA is keeping an intense focus on improving both revenue and contribution margin. Contribution margin is our revenues less material, freight, policy and warranty costs. GMNA increased capital spending by approximately $400 million in 2005 in support of new car and truck programs, despite financial pressures. GM anticipates total capital spending on product development in 2006 of $8.7 billion, of which $5.7 billion will be devoted to GMNA. The execution of new product introductions continues to be a major emphasis, as shown by the success of new entries such as the Chevrolet Cobalt, Impala, and HHR, the Hummer H3, Pontiac G6 and Solstice, Buick Lucerne, and Cadillac STS and DTS. Starting in 2006, GM will rapidly revitalize its product portfolio over the next two years with new full-sized sport utility vehicles and pick-up trucks, additional cross over vehicles, and a significantly expanded line up for Saturn. In 2006, approximately 29% of GMNA’s sales volume is expected to come from recently launched cars and trucks, as well as upcoming launch vehicles such as the Chevrolet Tahoe, Saturn Sky, GMC Yukon, Cadillac Escalade, and Saturn Aura. By 2007, GM expects more than 30% of GM’s sales volumes to come from these new vehicles. GMNA is reallocating capital and engineering to support more fuel-efficient vehicles, including hybrid vehicles in the United States, and is increasing production of active fuel management engines and six-speed transmissions. GM is also undertaking a major initiative in alternate fuels through sustainable technologies such as ethanol/gasoline blended (E85) FlexFuel vehicles. During 2006, GM will offer nine E85 FlexFuel models, bringing an additional 400,000 E85 FlexFuel vehicles into its fleet.

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Key Factors Affecting Future Results — (continued)
GM North America Restructuring Plan — (continued)
Revitalize Sales and Marketing Strategy
      In January 2006, GM announced that it significantly lowered manufacturer’s suggested retail prices on vehicles accounting for about 80% of its automotive sales volume. This included every Chevrolet, Buick, and GMC model, as well as most Pontiac cars and trucks. This is the next step in GM’s “Total Value Promise” initiative in GMNA to emphasize the value it offers to consumers.
      Clarifying, focusing, and differentiating the role of each North American brand continues to be an important goal. GM also continues to implement a more orderly and consistent alignment of its distribution system, especially among Pontiac, Buick, and GMC dealers. In addition, GM believes that its increased advertising in support of new products and its specific marketing initiatives to improve GM’s sales performance in certain major metropolitan markets will support growing GMNA’s business.
Accelerate Cost Reductions and Quality Improvements
      GM announced in November 2005 a significant move to reduce its structural costs in the manufacturing area. These plans include the cessation of operations at nine assembly, stamping, and powertrain facilities and three Service and Parts Operations facilities by 2008, and a reduction in manufacturing employment levels of approximately 30,000. GM expects that these actions, together with other efficiency and productivity initiatives, will result in efficiency and productivity gains and reduce excess capacity by one million units annually. This is in addition to the one million-unit annual reduction in assembly capacity that has been achieved over the 2002 to 2005 period.
      In addition, we have been in discussions with the UAW in an effort to develop an agreed upon accelerated attrition program by which we can reduce the number of employees that are and will be in the JOBS bank in a cost effective manner. As part of these discussions, on March 22, 2006, GM, Delphi and the UAW reached a tentative agreement intended to reduce the number of U.S. hourly employees through an accelerated attrition program. The agreement is subject to approval by the bankruptcy court of Delphi’s participation in the agreement. If so approved, the agreement will provide for a combination of early retirement programs and other incentives designed to help reduce employment levels at GM, which may have the effect of reducing the number of employees that are or will be in the JOBS bank. Under the agreement, GM and the UAW also agreed to discuss other options to address remaining surplus people at specific locations and all areas in which GM and the UAW can work together to close GM’s competitive gap with its foreign competition and reduce GM’s structural costs. Further, GM’s management believes it is very important to negotiate a more competitive collective bargaining agreement with the UAW in 2007.
      On February 7, 2006, GM announced its intention to substantially alter the pension benefits for current U.S. salaried employees. On March 7, 2006, GM announced the details of this plan, under which GM will freeze accrued benefits in the current plan, and implement a new benefit structure for future accruals, which will include a reduced defined benefit plan for some salaried employees and a new defined contribution plan for the other salaried employees. These pension plan changes will not affect current retirees or surviving spouses who are drawing benefits from the Salaried Retirement Program.
      Reducing material costs, by far the largest cost item in the aggregate, remains a critical part of GMNA’s overall cost reduction plans. Despite higher commodity prices and troubled supplier situations, GMNA is targeting for 2006 a net reduction of $1 billion, prior to factoring in the cost of government mandated product improvements. GM believes that its utilization of the most competitive supply sources and its improvements to its global processes for product development are two major opportunities to reduce material costs.
      GMNA is also seeking cost efficiencies in most other areas of the business including engineering, advertising, salaried employment levels, and indirect material costs. Engineering will seek to reduce

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results — (continued)
GM North America Restructuring Plan — (continued)
development costs through the use of common vehicle architectures that can be used on a global basis. Advertising will seek more efficient and focused spending in line with brand focus. In 2006, salaried headcount levels are expected to continue to decline. Our headcount reduction efforts have resulted in a 30% reduction to salaried headcount over the past five years.
Address Health-Care Burden
      Addressing the legacy cost burden of health care for employees and retirees in the United States is one of the critical challenges facing the Corporation.
      In October 2005, GM and the UAW reached a tentative agreement to reduce GM’s health-care costs significantly while maintaining a high level of health-care benefits for its hourly employees and retirees in the United States. In December 2005, GM, the UAW and a class of hourly retirees finalized that agreement, which is subject to court approval, and submitted it for court approval.
      The agreement is projected to reduce GM’s retiree health-care (OPEB) liabilities by about $15 billion, or 25% of the Corporation’s hourly health-care liability, reduce GM’s annual employee health-care expense by about $3 billion on a pre-tax basis during a seven-year amortization period, and result in cash flow savings estimated to be about $1 billion a year, after the agreement is fully implemented. The agreement will remain in effect until September 2011, after which either GM or the UAW may cancel the agreement upon 90 days written notice. Similarly, GM’s contractual obligations to provide UAW hourly retiree heath-care benefits extends to September 2011 and will continue thereafter unless terminated by GM or the UAW. This essentially means that the matters covered by this agreement will continue in effect for UAW retirees beyond the expiration of GM’s current collective bargaining agreement in September 2007.
      The agreement also commits GM to make contributions to a new independent Defined Contribution Voluntary Employees’ Beneficiary Association (DC VEBA) that will be used to mitigate the effect of reduced GM health-care coverage on individual UAW hourly retirees. The new independent DC VEBA will be partially funded by GM contributions of $1 billion in each of three years, currently expected to be 2006, 2007 and 2011. GM will also make future contributions subject to provisions of the tentative agreement referencing profit sharing payments, wage deferral payments, increases in value of GM $12/3 par value common stock, and dividend payments. In addition, generally speaking, under the terms of the agreement, UAW retirees are responsible for annual increases in health-care benefit costs up to 3% and GM is responsible for increases in excess thereof.
      Although GM continues to believe that it can lawfully make changes to retiree health-care benefits, GM and the UAW agreed as part of their tentative settlement to seek court approval. The agreement was finalized by GM, the UAW and a class of hourly retirees in December 2005 and submitted to a court for approval. GM is awaiting a final determination on the agreement by the court.
      GM is also increasing the U.S. salaried workforce’s participation in the cost of health care. On February 7, 2006, GM announced that it will cap its contributions to salaried retiree health care at the level of its 2006 expenditures. The cap will take effect beginning January 1, 2007. This affects those employees and retirees who are eligible for the salaried post-retirement health-care benefit, their surviving spouses, and their eligible dependents. Salaried employees who were hired after January 1, 1993, are not eligible for retiree health-care benefits, so they are not affected by these changes. When average costs exceed established limits following 2006, additional plan changes that affect cost-sharing features of program coverage will occur, effective with the start of the next calendar year. Program changes may include, but are not limited to, higher monthly contributions, deductibles, coinsurance, out-of-pocket maximums, and prescription drug payments. Plan changes may be implemented in medical, dental, vision, and prescription drug plans.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results — (continued)
GM North America Restructuring Plan — (concluded)
      GM currently expects to remeasure its OPEB liability for the revised health-care benefits for salaried retirees, which become effective in January 2007. The remeasurement is expected to result in a reduction of this liability of approximately $4.8 billion. The benefit associated with the reduction in the OPEB liability is expected to be amortized and reduce expenses at an annual pre-tax rate of $900 million for approximately eight years and have a favorable effect on GM’s 2006 pre-tax earnings estimated to be approximately $500 million. The majority of the OPEB liability reduction and related expense would accrue to GM’s North American automotive operations. Cash savings will be limited initially, but GM expects that annual cash savings from this action will grow to about $200 million within five years, and continue to increase after that.
      These expected health-care cost-reduction results exclude any possible effect from the Delphi situation discussed below. GM is committed to meeting the challenges and opportunities related to the Delphi bankruptcy, and will work as constructively as possible with Delphi to support their objective of emerging from bankruptcy as a viable ongoing business.
Expected Cost Reduction in North America
      Based on the GMNA restructuring initiatives, in late 2005 we set a target of reducing structural costs in North America by $6 billion on a running rate basis by the end of 2006 and reducing net material costs by $1 billion in 2006. Running rate basis refers to the annualized cost savings into the foreseeable future anticipated to result from cost savings actions when fully implemented. Largely due to additional cost-reduction actions in the areas of U.S. salaried retiree health care and U.S. salaried employee pension benefits, we now expect to reduce structural costs in North America by an average of $7 billion on a running rate basis by the end of 2006. We expect $4 billion of the structural cost reduction to be realized during calendar year 2006. The $7 billion average reduction on a running rate basis takes into account the unfavorable impact on structural costs of $1 billion contributions that we have committed to make to a new DC VEBA in each of 2006, 2007, and 2011 in order to mitigate the effect of reduced GM health care coverage on individual UAW hourly retirees.
      The expected annual structural cost reductions consist of:
  •  Approximately $3 billion related to the UAW health-care agreement. The $3 billion is comprised of approximately $1 billion principally related to OPEB service and interest costs expected to be realized each year during the six-year term of the agreement and approximately $2 billion which results from the amortization of a $15 billion gain related to the agreement over approximately a seven-year period, which coincides with the remaining service life of active employees. The annual savings will be allocated approximately 80% to GMNA and 20% to the corporate sector.
 
  •  Approximately $2 billion based on the capacity utilization and other manufacturing initiatives; and
 
  •  Approximately $2 billion based on additional productivity and cost efficiencies in other areas of the business, including engineering, advertising and salaried employment levels and benefits.
      Execution of our four-point turnaround plan is critical to our success. Although a substantial portion of the cost savings arising from the UAW health-care agreement will be amortized over the six- and seven-year periods described above, GM expects to pursue other initiatives that will enable it to continue to achieve structural cost reductions in excess of this annual running rate beyond that date. GM believes that it has sufficient balance sheet strength to finance the four-point turnaround plan under reasonably foreseeable circumstances. Nevertheless, there are significant risks to GM’s liquidity position, including the possibility of an extended labor dispute at Delphi, any inability to access (or amend or replace) our existing standby bank credit facility, any claims that may be successfully asserted against GM under various financing agreements in view of GM’s recent restatement of its prior financial statements, the further deterioration in GMAC’s credit rating leading to a higher cost of capital, the failure to improve our competitive position through the 2007

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results — (continued)
GM North America Restructuring Plan — (concluded)
labor negotiations, and the payment to Delphi employees of any amounts incremental to previously announced charges for contingent exposures related to Delphi’s Chapter 11 filing. Further information about our liquidity can be found in the Liquidity and Capital Resources section below.
     Delphi Bankruptcy
      On October 8, 2005, Delphi filed a petition for Chapter 11 proceedings under the United States Bankruptcy Code for itself and many of its U.S. subsidiaries. GM expects no immediate effect on its global automotive operations as a result of Delphi’s action. Delphi is GM’s largest supplier of automotive systems, components and parts, and GM is Delphi’s largest customer.
      GM will continue to work constructively in the court proceedings with Delphi, Delphi’s unions, and other participants in Delphi’s restructuring process. GM’s goal is to pursue outcomes that are in the best interests of GM and its stockholders, and that enable Delphi to continue as an important supplier to GM.
      Delphi has indicated to GM that it expects no disruption in its ability to supply GM with the systems, components and parts it needs as Delphi pursues a restructuring plan under the Chapter 11 process. Although the challenges faced by Delphi during its restructuring process could create operating and financial risks for GM, that process is also expected to present opportunities for GM. These opportunities include reducing, over the long term, the significant cost penalty GM incurs in obtaining parts from Delphi, as well as improving the quality of systems, components and parts GM procures from Delphi as a result of the restructuring of Delphi through the Chapter 11 process. However, there can be no assurance that GM will be able to realize any benefits.
      There is a risk that Delphi or one or more of its affiliates may reject or threaten to reject individual contracts with GM, either for the purpose of exiting specific lines of business or in an attempt to increase the price GM pays for certain parts and components. As a result, GM might be materially adversely affected by disruption in the supply of automotive systems, components and parts that could force the suspension of production at GM assembly facilities.
      In addition, various financial obligations Delphi has to GM as of the date of Delphi’s Chapter 11 filing, including the $951 million payable for amounts that Delphi owed to GM relating to Delphi employees who were formerly GM employees and subsequently transferred back to GM as job openings became available to them under certain employee “flowback” arrangements as of the date of Delphi’s filing for Chapter 11, may be subject to compromise in the bankruptcy proceedings, which may result in GM receiving payment of only a portion of the face amount owed by Delphi.
      GM will seek to minimize this risk by protecting our right of setoff against the $1.15 billion we owed to Delphi as of the date of its Chapter 11 filing. A procedure for determining setoff claims has been put in place by the bankruptcy court. However, the extent to which these obligations are covered by our right to setoff may be subject to dispute by Delphi, the creditors committee, or Delphi’s other creditors, and limitation by the court. GM cannot provide any assurance that it will be able to fully or partially setoff such amounts. However, to date setoffs of approximately $52.5 million have been agreed to by Delphi and taken by GM. Although GM believes that it is probable that it will be able to collect all of the amounts due from Delphi, the financial impact of a substantial compromise of our right of setoff could have a material adverse impact on our financial position.
      In connection with GM’s spin-off of Delphi in 1999, GM entered into separate agreements with the UAW, the International Union of Electrical Workers and the United Steel Workers. In each of these three agreements (Benefit Guarantee Agreement(s)), GM provided contingent benefit guarantees to make payments for limited pension and OPEB expenses to certain former GM U.S. hourly employees who

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results — (continued)
     Delphi Bankruptcy — (continued)
transferred to Delphi as part of the spin-off and meet the eligibility requirements for such payments (Covered Employees).
      Each Benefit Guarantee Agreement contains separate benefit guarantees relating to pension, post-retirement health care and life insurance benefits. These limited benefit guarantees each have separate triggering events that initiate potential GM liability if Delphi fails to provide the corresponding benefit at the required level. Therefore, it is possible that GM could incur liability under one of the guarantees (e.g., pension) without triggering the other guarantees (e.g., post-retirement health care or life insurance). In addition, with respect to pension benefits, GM’s obligation under the pension benefit guarantees only arises to the extent that the combination of pension benefits provided by Delphi and the Pension Benefit Guaranty Corporation (PBGC) falls short of the amounts GM has guaranteed.
      The Chapter 11 filing by Delphi does not by itself trigger any of the benefit guarantees. In addition, the benefit guarantees expire on October 18, 2007 if not previously triggered by Delphi’s failure to pay the specified benefits. If a benefit guarantee is triggered before its expiration date, GM’s obligation could extend for the lives of affected Covered Employees, subject to the applicable terms of the pertinent benefit plans or other relevant agreements.
      The benefit guarantees do not obligate GM to guarantee any benefits for Delphi retirees in excess of the levels of corresponding benefits GM provides at any given time to GM’s own hourly retirees. Accordingly, if any of the benefits GM provides to its hourly retirees are reduced, there would be a similar reduction in GM’s obligations under the corresponding benefit guarantee.
      A separate agreement between GM and Delphi requires Delphi to indemnify GM if and to the extent GM makes payments under the benefit guarantees to the UAW employees or retirees. GM received a notice from Delphi, dated October 8, 2005, that it was more likely than not that GM would become obligated to provide benefits pursuant to the benefit guarantees to the UAW employees or retirees. The notice stated that Delphi was unable at that time to estimate the timing and scope of any benefits GM might be required to provide under those benefit guarantees. Any recovery by GM under indemnity claims against Delphi might be subject to partial or complete discharge in the Delphi reorganization proceeding. As a result, GM’s claims for indemnity may not be paid in full.
      As part of the discussion to attain GM’s tentative health-care agreement with the UAW, GM provided former GM employees who became Delphi employees the potential to earn up to seven years of credited service for purposes of eligibility for certain health-care benefits under the GM/ UAW benefit guarantee agreement.
      On March 22, 2006, GM, Delphi and the UAW reached a tentative agreement intended to reduce the number of U.S. hourly employees at GM and Delphi through an accelerated attrition program. The agreement is subject to approval by the bankruptcy court of Delphi’s participation in the agreement. If so approved, the agreement will provide for a combination of early retirement programs and other incentives designed to help reduce employment levels at both GM and Delphi. The agreement also calls for the flowback of 5,000 UAW-represented Delphi employees to GM by September 2007 (subject to extension). Eligible UAW-represented Delphi employees may elect to retire from Delphi or flow back to GM and retire. Under the agreement, GM has agreed to assume the financial obligations relating to the lump sum payments to be made to eligible Delphi U.S. hourly employees accepting normal or voluntary retirement incentives and certain post-retirement employee benefit obligations relating to Delphi employees who flow back to GM under the agreement. GM believes that the agreement will enhance the prospects for GM, the UAW and Delphi to reach a broad-based consensual resolution of issues relating to the Delphi restructuring. However, GM cannot provide any assurance that the bankruptcy court will approve of Delphi’s participation in the agreement (and if such approval is not obtained, GM and the UAW will have no obligations under the agreement) or that

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results — (continued)
     Delphi Bankruptcy — (concluded)
enough employees will agree to participate in the attrition program to reduce employment levels at Delphi sufficient to provide the benefits we anticipate.
      GM believes that it is probable that it has incurred a contingent liability due to Delphi’s Chapter 11 filing. GM believes that the range of the contingent exposures is between $5.5 billion and $12 billion, with amounts near the low end of the range considered more possible than amounts near the high end of the range assuming an agreement is reached among GM, Delphi, and Delphi’s unions. As a result, GM established a reserve of $5.5 billion ($3.6 billion after tax) as a non-cash charge in the fourth quarter of 2005. These views reflect GM’s current assessment that it is unlikely that a Chapter 11 process will result in both a termination of Delphi’s pension plan and complete elimination of its OPEB plans. The amount of this charge may change, depending on the result of discussions among GM, Delphi, and Delphi’s unions, and other factors. GM is currently unable to estimate the amount of additional charges, if any, which may arise from Delphi’s Chapter 11 filing. A consensual agreement to resolve the Delphi matter may cause GM to incur additional costs in exchange for benefits that would accrue to GM over time.
      With respect to the possible cash flow effect on GM related to its ability to make either pension or OPEB payments, if any are required under the benefit guarantees, GM would expect to make such payments from ongoing operating cash flow and financings. Such payments, if any, are not expected to have a material effect on GM’s cash flows in the short-term. However, if payable, these payments would be likely to increase over time, and could have a material effect on GM’s liquidity in coming years. (For reference, Delphi’s 2004 Form 10-K reported that its total cash outlay for OPEB for 2004 was $226 million, which included $154 million for both hourly and salaried retirees, the latter of whom are not covered under the benefit guarantees, plus $72 million in payments to GM for certain former Delphi hourly employees that flowed back to retire from GM). If benefits to Delphi’s U.S. hourly employees under Delphi’s pension plan are reduced or terminated, the resulting effect on GM cash flows in future years due to the Benefit Guarantee Agreements is currently not reasonably estimable.
GMAC Strategic Alternatives
      On October 17, 2005, GM announced that it is exploring the possible sale of a controlling interest in GMAC, with the goal of delinking GMAC’s credit rating from GM’s credit rating and renewing its access to low-cost financing. Although any transaction involving GMAC would reduce our interest in the earnings of GMAC, it is expected that the financial effects of that reduction would be offset by the value of any consideration we receive from a purchaser. We are working to finalize a transaction as rapidly as we can. Structuring a GMAC transaction is a complex endeavor and we cannot predict whether any transaction with respect to GMAC will occur, the terms of any transaction, the identity of any purchaser, or whether and over what period a transaction could achieve the principal strategic goals. Even if we do not complete a transaction involving GMAC, management believes that GMAC will be able to maintain the necessary liquidity to support GM vehicle sales with its vehicle financing activities in 2006.
      A sale of a controlling interest in GMAC would trigger a need to reassess the valuation attributable to the interest we sell and the interest we retain in GMAC. Even if we do not sell a controlling interest in GMAC, we will continue to reassess the value of GMAC on a periodic basis.
      GMAC also announced that it will continue to evaluate strategic and structural alternatives to help ensure that its residential mortgage business, Residential Capital Corp. (ResCap), retains its investment grade credit ratings.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results — (concluded)
     Health-Care Liquidity Matters
      In recent years, GM has paid its OPEB expenditures from operating cash flow, which reduces GM’s liquidity and cash flow from operations. GM’s OPEB spending was $4.3 billion in 2005, up $0.5 billion from 2004. GM’s total cash spending for health care in 2005 was $5.5 billion, up approximately $0.1 billion from 2004 spending levels. However, GM has VEBA and 401(h) trusts with assets totaling $19.1 billion in value as of December 31, 2005 that could be used to reimburse GM for its OPEB expenditures under certain circumstances. During each of the second and third quarters of 2005, GM withdrew $1 billion from its VEBA trust as a reimbursement for its retiree health care payments and life insurance costs. On October 3, 2005, GM withdrew an additional $1 billion from the VEBA and in December withdrew $121 million from the hourly VEBA and $55 million from the salaried VEBA. GM withdrew $1 billion from the hourly VEBA trust on February 1, 2006 and March 1, 2006, respectively. On a quarter-by-quarter basis, GM will evaluate the need for additional withdrawals as the cost of health care continues to adversely affect GM’s liquidity. GM’s OPEB liabilities also negatively affect GM’s credit ratings, which are discussed in the Status of Debt Ratings section below.
      Because of the importance of OPEB liabilities to GM’s financial condition, GM management is pursuing an aggressive strategy on several fronts to mitigate the continued growth of these liabilities. These efforts include public policy initiatives, improvements to the health-care delivery system, enhanced consumer awareness of the effect of health-care choices and increased cost sharing with salaried and hourly employees. GM’s turnaround plan and future prospects could be materially adversely affected unless substantial progress is made on its health-care cost issues in the future.
Investigations
      GM has been cooperating with the government in connection with a number of investigations, including investigations concerning pension and OPEB and certain transactions between GM and Delphi.
      The Securities and Exchange Commission (SEC) has issued subpoenas to GM in connection with various matters involving GM that it has under investigation. These matters include GM’s financial reporting concerning pension and OPEB, certain transactions between GM and Delphi, supplier price reductions or credits, and any obligation GM may have to fund pension and OPEB costs in connection with Delphi’s proceedings under Chapter 11 of the U.S. Bankruptcy Code. In addition, the SEC recently issued a subpoena in connection with an investigation of our transactions in precious metal raw materials used in our automotive manufacturing operations, and a federal grand jury recently issued a subpoena in connection with supplier credits.
      Separately, SEC and federal grand jury subpoenas have been served on GMAC entities in connection with industry wide investigations into practices in the insurance industry relating to loss mitigation insurance products such as finite risk insurance.

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Restatements
      GM has concluded an internal review of credits received from suppliers and the appropriateness of its accounting treatment for them during the years 2000 through 2005. The review indicated that GM erroneously recognized some supplier credits as income in the year in which they were received, when it should have instead amortized them over the future periods to which they were attributable. Upon completion of this review, GM filed revised periodic reports with the SEC in which GM restated its financial statements for these and other errors identified in all periods presented in those reports. The restated financial statements presented in those reports corrected the erroneous accounting for supplier credits, transactions between GM and Delphi, OPEB, pension, transactions involving precious metals, classifications of cash flows at ResCap, and other matters requiring out-of-period adjustments.
      Certain financing agreements to which GM is a party contain customary covenants and representations with respect to the delivery and certification of financial statements, which generally require that those financial statements be materially accurate when delivered. As a result of GM’s recent restatement of its financial statements, it is possible that the counterparties under certain of those financing agreements may assert that GM is no longer entitled to the benefits under the agreements or that a default has occurred with regard to the financial statements which GM provided and which GM has now restated. These agreements consist principally of obligations in connection with sale/leaseback transactions and other lease obligations and do not include GM’s public debt indentures. Although GM has certain legal rights (such as the ability to cure) with respect to certain claims that could be asserted and there may be economic disincentives for third parties to raise certain claims to the extent they have them, there can be no assurance that one or more counterparties will not attempt to declare a default or exercise such rights or remedies as they may deem available, which could include acceleration, termination or other remedies, and the amounts involved could be material. To date, GM has not received any notices of any declaration of default or similar action from any such other counterparty, and GM continues to make required payments and satisfy other obligations under these agreements.
Liquidity and Capital Resources
Automotive and Other Operations
     Available Liquidity
      GM believes it has sufficient liquidity, balance sheet strength and financial flexibility to meet its capital requirements over the short and medium-term under reasonably foreseeable circumstances. Over the long term, we believe that GM’s ability to meet its capital requirements will primarily depend on the successful execution of its four-point turnaround plan and the return of its North American operations to profitability and positive cash flow, and its ability to execute the globalization of its principal business functions. GM Auto & Other’s available liquidity includes its cash balances, marketable securities and readily-available assets of its VEBA trusts. At December 31, 2005, GM Auto & Other’s available liquidity was $20.4 billion compared with $23.3 billion at December 31, 2004. In March 2006, GM sold approximately 17% of Suzuki’s common stock for approximately $2.0 billion in cash, and continues to hold approximately 3.7% of Suzuki’s common stock. The amount of GM’s consolidated cash and marketable securities is subject to intra-month and seasonal fluctuations and includes balances held by various GM business units and subsidiaries worldwide that are needed to fund their operations.
                           
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in billions)
Cash and cash equivalents
  $ 15.2     $ 13.1     $ 14.4  
Other marketable securities
    1.4       6.7       9.1  
Readily-available assets of VEBA trusts
    3.8       3.5       3.5  
                   
 
Available Liquidity
  $ 20.4     $ 23.3     $ 27.0  
                   

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Automotive and Other Operations — (continued)
Available Liquidity — (continued)
      In addition to the readily-available portion of GM’s VEBA trusts included in available liquidity, GM expects to have access to significant additional assets in its VEBA trusts over time to fund its future OPEB plan costs. Total assets in the VEBA trusts approximated $19.1 billion at December 31, 2005 versus $20.0 billion at December 31, 2004. The decline in these balances was primarily driven by $3.2 billion of withdrawals during 2005, partially offset by favorable asset returns during the year.
      GM also has a $5.6 billion unsecured line of credit under a standby facility with a syndicate of banks that terminates in June 2008. GM has not previously drawn on this credit facility or its predecessor facilities and believes that it has sufficient liquidity over the short and medium term without drawing on this facility. GM believes that it has a good faith basis on which to make a borrowing request under this credit facility. However, in view of GM’s recent restatement of its prior financial statements, there is substantial uncertainty as to whether the bank syndicate would be required to honor such a request, and therefore there is a high risk that GM would not be able to borrow under this facility. GM believes that this matter is unlikely to be tested because GM has no current need or intention to draw on the existing facility. Moreover, GM is currently exploring the possibility of amending or replacing the existing facility with new terms that would, among other things, resolve any uncertainty regarding GM’s ability to borrow thereunder. There can be no assurance that GM will be successful in negotiating an amendment or replacement of the existing credit line or, if so, as to the amount, terms or conditions of any such amended or replacement facility.
      GM believes that issues also may arise from its recent restatement of its prior financial statements under various financing agreements, which consist principally of obligations in connection with sale/ leaseback transactions and other lease obligations and do not include GM’s public debt indentures, as to which GM is a party. GM has evaluated the effect of its restatement under these agreements, including its legal rights (such as its ability to cure) with respect to any claims that could be asserted. While the amounts that might be subject to possible claims of acceleration, termination or other remedies under some or all of these agreements are uncertain, GM currently believes such amounts would likely not exceed approximately $3 billion. In addition, there may be economic disincentives for third parties to raise such claims to the extent they have them. GM believes that it has sufficient liquidity over the short and medium term, regardless of the resolution of these matters.
      GM also has an additional $0.3 billion in undrawn committed facilities with various maturities and undrawn uncommitted lines of credit of $0.7 billion. In addition, GM’s consolidated affiliates with non-GM minority shareholders, primarily GM Daewoo, have a combined $1.5 billion in undrawn committed facilities. Other potential sources of liquidity could include the acceleration of additional dividends from GMAC and the sale of non-core assets.
Cash Flow
      The decrease in available liquidity to $20.4 billion at December 31, 2005 from $23.3 billion at December 31, 2004 was primarily a result of GM Auto & Other’s negative operating cash flow and the significant capital expenditures required to support the business, partially offset by withdrawals from GM’s VEBA trusts for its OPEB plans for reimbursement of retiree healthcare and life insurance benefits, cash dividends received from GMAC and net cash received and consolidated as part of transactions related to equity interests in affiliates.
      For the year ended December 31, 2005, Auto & Other’s operating cash flow was breakeven, principally driven by the $(12.8) billion net loss from continuing operations before cumulative effect of accounting change. That result compares with operating cash flow of $1.2 billion and a net loss from continuing operations of $(145) million in 2004. In addition to the significant net loss, 2005 operating cash flow was unfavorably impacted by approximately $1.8 billion of cash payments made by GM to Fiat to terminate the Master Agreement and settle various disputes related thereto (GM paid a total of approximately $2.0 billion as a result of the Fiat settlement, approximately $1.8 billion of which was classified as operating cash flow, while

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Automotive and Other Operations — (continued)
Available Liquidity — (continued)
approximately $200 million, primarily related to the purchase of certain assets, was classified as investing cash flow), and by approximately $802 million of cash costs related to the GME restructuring initiative. During 2005, GM withdrew $3.2 billion from its VEBA trusts for its OPEB plans for reimbursement of retiree health care and life insurance benefits provided to eligible plan participants, improving operating cash flow by $3.2 billion.
      Investments in marketable securities primarily consist of purchases, sales and maturities of highly-liquid corporate, U.S. government, U.S. government agency and mortgage-backed debt securities used for cash management purposes. During 2005, GM acquired approximately $2.6 billion of marketable securities while sales and maturities of marketable securities were approximately $7.7 billion.
      Capital expenditures were a significant use of investing cash in 2005. Capital expenditures were $7.9 billion, up from $7.3 billion in 2004 primarily as a result of significant investment in GMNA required to support new product launches. Favorable investing cash flows included $2.5 billion of dividends from GMAC, up from $1.5 billion in 2004, $1.4 billion of cash acquired (net of investment) as a result of investment activity, and $846 million of proceeds from the sale of business units/equity investments. The $1.4 billion of cash acquired (net of investment) as a result of investment activity in 2005 was driven primarily by GM’s acquisition in 2005 of a majority interest in GM Daewoo, which resulted in GM consolidating GM Daewoo’s cash balance of approximately $1.6 billion (net of $70 million cash paid by GM to acquire the additional 6.3% interest in GM Daewoo). Proceeds from the sale of business units/equity investments was primarily driven by GM’s sale of its interest in FHI, for which GM received approximately $800 million. In March 2006, GM sold its interest in Suzuki common stock for approximately $2.0 billion in cash. In 2006, GM anticipates total capital spending on product development, including GM’s full-size pickup trucks, in 2006 of $8.7 billion, of which $5.7 billion will be devoted to GMNA. We maintain a commitment to product development, but our substantial legacy costs give us less available cash to invest relative to some of our competitors.
Debt
      GM Auto & Other’s total debt at December 31, 2005 was $32.5 billion, of which $1.5 billion was classified as short-term and $31.0 billion was classified as long-term. At December 31, 2004, total debt was $32.5 billion, of which $2.1 billion was short-term and $30.4 billion was long-term.
      Separate to the $1.5 billion of short-term debt, near-term North American term debt maturities include up to approximately $1.2 billion in 2007, primarily related to approximately $1.2 billion of convertible debentures that may be put to GM for cash settlement in March 2007, and approximately $1.3 billion of various maturities in 2008.
      In order to provide financial flexibility to GM and its suppliers, GM maintains a trade payables program through GMACCF. The GMACCF program was implemented in the second quarter of 2005, replacing a larger program that GM maintained with General Electric Capital Corporation. Under the GMACCF program, GMAC Commercial Finance (GMACCF) pays participating GM suppliers the amount due to them from GM in advance of their contractual original due dates. In exchange for the early payment, these suppliers accept a discounted payment. On the original due date of the payables, GM pays GMACCF the full amount. At December 31, 2005, GM owed approximately $0.3 billion to GMACCF under the program, which amount is included in the balances of net payable to FIO and net receivable from Auto & Other in GM’s Supplemental Information to the Consolidated Balance Sheets, and is eliminated in GM’s Consolidated Balance Sheets.

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Automotive and Other Operations — (concluded)
Available Liquidity — (concluded)
Net Liquidity
      Net liquidity, calculated as cash, marketable securities, and $3.8 billion ($3.5 billion at December 31, 2004) of readily-available assets of the VEBA trust less the total of loans payable and long-term debt, was a negative $12.1 billion at December 31, 2005, compared with a negative $9.2 billion at December 31, 2004.
Financing and Insurance Operations
      GMAC’s consolidated assets totaled $320.5 billion at December 31, 2005, down 1.2% from $324.2 billion at December 31, 2004, which decrease was primarily attributable to a decrease in consumer finance receivables, primarily due to lower automotive finance receivables as a result of an increase in whole loan sales.
      Consistent with the reduction in assets, GMAC’s total debt decreased to $253.2 billion at December 31, 2005 (excluding Commercial Mortgage debt of $4.3 billion, which has been reclassified as held for sale), compared to $267.8 billion at December 31, 2004 and $239.4 billion at December 31, 2003. GMAC’s 2005 year-end ratio of total debt to total stockholder’s equity was 11.9:1 compared to 12.0:1 at December 31, 2004. GMAC’s liquidity, as well as its ability to profit from ongoing activity, is in large part dependent upon its timely access to capital and the costs associated with raising funds in different segments of the capital markets. Part of GMAC’s strategy in managing liquidity risk has been to develop diversified funding sources across a global investor base. As an important part of its overall funding and liquidity strategy, GMAC maintains substantial bank lines of credit. These bank lines of credit, which totaled $47.0 billion at December 31, 2005, provide “back-up” liquidity and represent additional funding sources, if required.
      GMAC currently has a $3.0 billion syndicated line of credit committed through June 2006, $4.4 billion committed through June 2008, and committed and uncommitted lines of credit of $3.6 billion and $11.0 billion, respectively. In addition, at December 31, 2005, New Center Asset Trust (NCAT) had an $18.5 billion committed liquidity facility. NCAT is a special purpose entity administered by GMAC for the purpose of funding assets as part of GMAC’s securitization funding programs. This entity funds the purchase of assets through the issuance of asset-backed commercial paper and represents an important source of liquidity to GMAC. At December 31, 2005, NCAT had commercial paper outstanding of $10.9 billion, which is not consolidated in the Corporation’s Consolidated Balance Sheet. In addition, GMAC has $126.8 billion in committed and uncommitted secured funding facilities with third-parties, including commitments with third-party asset-backed commercial paper conduits, as well as forward flow sale agreements with third-parties and repurchase facilities. This includes five year commitments that GMAC has entered into in 2005 with remaining capacity to sell up to $64 billion of retail automotive receivables to third party purchasers through 2010. The unused portion of these committed and uncommitted facilities totaled $87.7 billion at December 31, 2005.
Status of Debt Ratings
      Standard & Poor’s, Moody’s, and Fitch currently rate GM’s and GMAC’s credit at non-investment grade. Dominion Bond Rating Services (DBRS) rates GM’s credit at non-investment grade and maintains an investment grade rating for GMAC. All major rating agencies rate ResCap at investment grade. The following table summarizes GM’s, GMAC’s and ResCap’s credit ratings as of March 27, 2006:
                           
    Senior Debt     Commercial Paper
           
Rating Agency   GM   GMAC   ResCap     GM   GMAC   ResCap
                           
DBRS
  B (High)   BBB (Low)   BBB     R-3 (Mid)   R-2 (Low)   R-2 (Mid)
Fitch
  B   BB   BBB-     Withdrawn   B   F3
Moody’s
  B2   Ba1   Baa3     Not Prime   Not Prime   P3
S&P
  B   BB   BBB-     B-3   B-1   A-3
                           

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    Outlook
     
Rating Agency   GM   GMAC   ResCap
             
DBRS
  Negative   Developing   Developing
Fitch
  Rating Watch Negative   Evolving   Evolving
Moody’s
  Review for Possible Downgrade   Review for Possible Downgrade   Review for Possible Downgrade
S&P
  Negative   Developing   Developing
             
      While GM experienced limited access to the capital markets in 2005 as a result of deterioration in its credit ratings, it was able to utilize available liquidity to meet its capital requirements. Similarly, due to the downgrade of its unsecured debt to non-investment grade, GMAC’s access to the unsecured capital markets was limited. GMAC was able to meet its capital requirements by accessing alternative funding sources, with a focus on secured funding and automotive whole loan sales. In addition, GMAC has been able to diversify its unsecured funding through the formation of ResCap, which in 2005 issued $5.25 billion in unsecured debt to investors.
      Each of Standard and Poor’s, Moody’s, Fitch, and DBRS has recently downgraded GM’s senior debt ratings.
      On October 10, 2005, Moody’s placed GM’s Ba2 and GMAC’s Ba1 senior unsecured ratings under review for a possible downgrade. On October 17, 2005, Moody’s announced a change in GMAC’s and ResCap’s review status to “direction uncertain” from “review for a possible downgrade.” In addition, Moody’s placed GMAC’s Non-Prime short–term rating on review for possible upgrade. On November 1, 2005, Moody’s downgraded GM’s long-term credit rating from Ba2 to B1 with a negative outlook. GMAC’s rating, at Ba1, and Rescap’s at Baa3, were left under review with direction uncertain. Moody’s affirmed the ratings of these entities on both November 21, 2005, and January 19, 2006. On February 21, 2006, Moody’s downgraded GM’s senior unsecured debt to B2 with a negative outlook from B1 under review for a possible downgrade. On March 16, 2006, Moody’s placed the senior unsecured ratings of GM, GMAC and ResCap under review for a possible downgrade. At the same time, Moody’s changed the review status of ResCap’s short-term P-3 ratings to review for possible downgrade from direction uncertain.
      On October 3, 2005, Standard and Poor’s placed the ratings of GM, GMAC, and ResCap on CreditWatch with negative implications. On October 10, 2005, Standard and Poor’s downgraded GM’s long-term corporate credit rating from BB, CreditWatch with negative implications to BB minus CreditWatch with negative implications and, at the same time, downgraded GM’s short–term rating from B-1 CreditWatch with negative implications to B-2 CreditWatch with negative implications. The ratings for GMAC and Rescap were left at BB and BBB minus, respectively. The outlook for GMAC and ResCap remained on CreditWatch, but the implications on both entities were changed to “developing” from “negative.” On December 12, 2005, Standard and Poor’s resolved GM’s issuer credit rating by downgrading the rating from BB minus, CreditWatch with negative implications to B, outlook negative, and downgraded GM’s short–term ratings from B-2, CreditWatch with negative implications to B-3 outlook negative. GM’s ratings were removed from Creditwatch. The long-term ratings of GMAC and ResCap were unchanged at BB and BBB minus, respectively, both under CreditWatch with developing implications. GMAC’s and ResCap’s short–term ratings remained unchanged at B-1 and A-3 respectively, both under CreditWatch with developing implications.
      On October 17, 2005 Fitch affirmed GM’s senior debt credit rating of BB and placed the ratings of GMAC and ResCap on Rating Watch Evolving with a rating of BB and BBB-minus, respectively. On November 9, 2005, Fitch downgraded GM’s senior unsecured ratings from BB to B-plus, Rating Watch Negative, leaving the ratings of GMAC and Rescap unchanged. GM’s short–term rating was withdrawn. GMAC’s and ResCap’s short–term ratings were left at B and F-3, respectively (both on Rating Watch

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Status of Debt Ratings — (concluded)
Evolving). Fitch affirmed the ratings of GM, GMAC, and ResCap on February 7, 2006. On March 1, 2006, Fitch downgraded GM’s senior unsecured rating from B+ to B. Fitch maintained the rating watch negative outlook for GM’s ratings.
      On October 11, 2005, DBRS placed the ratings of GMAC and ResCap under review with developing implications. On October 14, 2005, DBRS downgraded GM’s long-term debt to BB with negative trends and confirmed GM’s commercial paper rating of R-3 (high), also with negative trends. On December 16, 2005, DBRS downgraded GM’s long–term debt to B (high) and GM’s short–term rating to R-3 (mid), both with negative trends.
      While the aforementioned ratings actions have increased borrowing costs and limited access to unsecured debt markets, these outcomes have been mitigated by actions taken by GM and GMAC over the past few years to focus on an increased use of liquidity sources other than institutional unsecured markets that are not directly affected by ratings on unsecured debt, including secured funding sources beyond traditional asset classes and geographical markets, automotive whole loan sales, and use of bank and conduit facilities. Further reductions of GM’s and/or GMAC’s credit ratings could increase the possibility of additional terms and conditions contained in any new or replacement financing arrangements. As a result of specific funding actions taken over the past few years, management believes that GM and GMAC will continue to have access to sufficient capital to meet the Corporation’s ongoing funding needs over the short and medium-term. Notwithstanding the foregoing, management believes that the current ratings situation and outlook increase the level of risk for achieving the Corporation’s funding strategy and GMAC’s ability to sustain current level of asset originations over the long-term. In addition, the ratings situation and outlook increase the importance of successfully executing the Corporation’s plans for improvement of operating results. Management continuously assesses these matters and is seeking to mitigate the increased risk by exploring whether actions could be taken that would provide a basis for rating agencies to evaluate GMAC’s financial performance in order to provide GMAC with ratings independent of those assigned to GM. On October 17, 2005, GM made an announcement that it is exploring the possible sale of a controlling interest in GMAC, with the goal of delinking GMAC’s credit rating from GM’s credit rating and renewing its access to low-cost financing. There can be no assurance that any such actions, if taken, would be successful in achieving a delinking of GMAC’s credit rating from GM’s credit rating by the rating agencies.
      In addition, GMAC has been able to diversify its unsecured funding through the formation of ResCap. ResCap, which was formed as the holding company of GMAC’s residential mortgage businesses, successfully achieved an investment grade rating (independent from GMAC) and issued $4 billion of unsecured debt in the second quarter of 2005. Following the bond offering, in July 2005, ResCap closed a $3.5 billion syndication of its bank facilities consisting of a $1.75 billion syndicated term loan, $0.9 billion syndicated line of credit committed through July 2008 and a $0.9 billion syndicated line of credit committed through July 2006. In addition, in the fourth quarter of 2005, ResCap filed a $12 billion shelf registration statement in order to offer senior and/or subordinated debt securities and has issued $3 billion ($1.75 billion issued in February 2006) in unsecured debt to investors, with a portion of the proceeds from the notes used to repay a portion of intercompany borrowings. These facilities are intended to be used primarily for general corporate and working capital purposes, as well as to repay affiliate borrowings, thus providing additional liquidity.
Line of Credit Between GM and GMAC
      GM has a $4 billion revolving line of credit from GMAC that expires in September 2006. This credit line is used for general operating and seasonal working capital purposes and to reduce external liquidity requirements, given the differences in the timing of GM’s and GMAC’s peak funding requirements. The maximum amount outstanding on this line during the year was $3.3 billion with no amounts outstanding on this line at December 31, 2005. Interest is payable on amounts advanced under the arrangements based on market interest rates, adjusted to reflect the credit rating of GM or GMAC in its capacity as borrower. In

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addition to this line of credit, GMAC had a similar line of credit with GM that allowed GMAC to draw up to $6 billion. This arrangement expired in December 2005 and was not renewed.
Pension and Other Postretirement Benefits
      Plans covering represented employees generally provide benefits of negotiated, stated amounts for each year of service as well as significant supplemental benefits for employees who retire with 30 years of service before normal retirement age.
      GM’s policy with respect to its qualified pension plans is to contribute annually not less than the minimum required by applicable law and regulation, or to directly pay benefit payments where appropriate. As of December 31, 2005, all legal funding requirements had been met. GM made contributions to its pension plans as follows (dollars in millions):
                         
    2005   2004   2003
             
U.S. hourly and salaried
  $     $     $ 18,504  
Other U.S. 
    125       117       117  
Non-U.S. 
    708       802       442  
      In 2006, GM does not have any contributions due for its U.S. hourly pension plan. In February 2006, GM contributed $1.7 million into its U.S. salaried pension plan. This contribution was a required contribution on behalf of GM employees who were former participants in the Saturn PCRP plan, which was merged into the GM salaried pension plan in 2005. GM does not expect to make any additional contributions into the salaried pension plan in 2006. GM expects to contribute or pay benefits of approximately $100 million to its other U.S. pension plan and $500 million to its primary non-U.S. pension plans, which include GM Canada Limited, Adam Opel and Vauxhall, in 2006.
      GM’s U.S. hourly and salaried pension plans are overfunded by $7.5 billion in 2005 and $1.6 billion in 2004. This increase was primarily attributable to strong actual asset returns of approximately 13% in 2005. The non-U.S. pension plans are underfunded. The deficit for non-U.S. pension benefits increased from approximately $9 billion at the end of 2004 to $10.7 billion at the end of 2005. This increase was primarily due to declines in discount rates in various countries that GM sponsors plans.
      GM also maintains hourly and salaried benefit plans that provide postretirement medical, dental, vision and life insurance to most U.S. retirees and eligible dependents. Certain of the non-U.S. subsidiaries have postretirement benefit plans, although most participants are covered by government sponsored or administered programs. GM’s U.S. OPEB plan was underfunded by $62.1 billion in 2005 and $53.8 billion in 2004. GM’s non-U.S. OPEB plans were underfunded by $3.8 billion in 2005 and $3.7 billion in 2004.
      In 2005, GM withdrew a total of $3.2 billion from plan assets of its VEBA trusts for its OPEB plans for reimbursement of retiree healthcare and life insurance benefits provided to eligible plan participants. In 2004, GM contributed a total of $9 billion to its U.S. OPEB plans, primarily U.S. hourly and salaried VEBA for OPEB plan accounts. GM withdrew $1 billion from its VEBA trust on each of February 1, 2006 and March 1, 2006.

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Pension and Other Postretirement Benefits — (concluded)
      The following benefit payments, which reflect estimated future employee services, as appropriate, are expected to be paid (dollars in millions):
                                                 
            Other Benefits   Non-U.S. Other Benefits
             
    Pension Benefits       Gross       Gross
            Medicare       Medicare
        Primary   Gross Benefit   Part D   Gross Benefit   Part D
    U.S. Plans   Non-U.S. Plans   Payments   Receipts   Payments   Receipts
                         
2006
    6,794       834       4,337       181       128        
2007
    6,693       865       4,637       271       137        
2008
    6,728       905       4,916       301       147        
2009
    6,744       940       5,163       328       157        
2010
    6,754       979       5,383       353       167        
2011-2015
  $ 33,517     $ 5,443     $ 29,187     $ 2,116     $ 993     $  
Off-Balance Sheet Arrangements
      GM and GMAC use off-balance sheet arrangements where the economics and sound business principles warrant their use. GM’s principal use of off-balance sheet arrangements occurs in connection with the securitization and sale of financial assets generated or acquired in the ordinary course of business by GMAC and its subsidiaries and, to a lesser extent, by GM. The assets securitized and sold by GMAC and its subsidiaries consist principally of mortgages, and wholesale and retail loans secured by vehicles sold through GM’s dealer network. The assets sold by GM consist principally of trade receivables.
      In addition, GM leases real estate and equipment from various off-balance sheet entities that have been established to facilitate the financing of those assets for GM by nationally prominent lessors that GM believes are creditworthy. These assets consist principally of office buildings, warehouses, and machinery and equipment. The use of such entities allows the parties providing the financing to isolate particular assets in a single entity and thereby syndicate the financing to multiple third parties. This is a conventional financing technique used to lower the cost of borrowing and, thus, the lease cost to a lessee such as GM. There is a well-established market in which institutions participate in the financing of such property through their purchase of ownership interests in these entities and each is owned by institutions that are independent of, and not affiliated with, GM. GM believes that no officers, directors or employees of GM, GMAC, or their affiliates hold any direct or indirect equity interests in such entities.
      The amounts outstanding in off-balance sheet facilities used by GM in its FIO reportable segment have increased over the past few years as GMAC continues to use securitization transactions that, while similar in legal structure to off-balance sheet securitizations, are accounted for as secured financings and are recorded as receivables and debt on the balance sheet.
      Assets in off-balance sheet entities were as follows (dollars in millions):
                   
    December 31
     
Automotive and Other Operations   2005   2004
         
Assets leased under operating leases
  $ 2,430     $ 2,553  
Trade receivables sold(1)
    708       1,210  
             
 
Total
  $ 3,138     $ 3,763  
             

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Off-Balance Sheet Arrangements — (concluded)
                     
Financing and Insurance Operations        
         
Receivables sold or securitized:
               
 
— Mortgage loans
  $ 99,084     $ 79,043  
 
— Retail finance receivables
    6,014       5,615  
 
— Wholesale finance receivables
    21,421       21,291  
             
   
Total
  $ 126,519     $ 105,949  
             
 
(1)  In addition, trade receivables sold to GMAC were $525 million as of December 31, 2005 and $549 million as of December 31, 2004.
Contractual Obligations and Other Long-Term Liabilities
      GM has the following minimum commitments under contractual obligations, including purchase obligations, as defined by the SEC. A “purchase obligation” is defined as an agreement to purchase goods or services that is enforceable and legally binding on GM and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Other long-term liabilities are defined as long-term liabilities that are reflected on GM’s balance sheet under GAAP. Based on this definition, the tables below include only those contracts which include fixed or minimum obligations. It does not include normal purchases, which are made in the ordinary course of business.

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Contractual Obligations and Other Long-Term Liabilities — (continued)
      The following table provides aggregated information about our Auto & Other segment’s outstanding contractual obligations and other long-term liabilities as of December 31, 2005.
Automotive and Other Operations
                                             
    Payments due by period
     
    2006   2007-2008   2009-2010   2011 and after   Total
                     
    (dollars in millions)
Debt
  $ 1,519     $ 2,847     $ 589     $ 27,648     $ 32,603  
Capital lease obligations
    174       597       251       573       1,595  
Operating lease obligations
    630       1,472       895       1,323       4,320  
Contractual commitments for capital expenditures
    745       15                   760  
Other contractual commitments:
                                       
 
Postretirement benefits(1)
    3,517       3,827                   7,344  
   
Less: VEBA assets(2)
    (3,517 )     (3,827 )                 (7,344 )
                               
 
Net
                             
 
Material
    1,079       1,676       1,262       332       4,349  
 
Information technology(3)
    333       179       4       1       517  
 
Marketing
    1,647       634       429       115       2,825  
 
Facilities
    201       227       178       445       1,051  
 
Rental car repurchases
    8,347                         8,347  
 
Policy, product warranty and recall campaigns liability
    4,480       4,123       482       43       9,128  
                               
Total contractual commitments
  $ 19,155     $ 11,770     $ 4,090     $ 30,480     $ 65,495  
                               
Remaining balance postretirement benefits
  $ 767     $ 5,438     $ 10,189     $ 61,203     $ 77,597  
   
Less: VEBA assets(2)
    (767 )     (5,438 )     (5,557 )           (11,762 )
                               
 
Net
  $     $     $ 4,632     $ 61,203     $ 65,835  
                               
      Long-term debt payable beyond one year at December 31, 2005 includes scheduled maturities as follows: 2007 — $1 billion; 2008 — $1.9 billion; 2009 — $0.4 billion; 2010 — $0.2 billion; 2011 and after — $27.6 billion. Included in the long-term debt payable beyond one year are certain convertible debentures of approximately $1.2 billion that may be put to GM for cash settlement in March 2007, ahead of its scheduled maturity after 2011.
(1)  Amounts include postretirement benefits under the current contractual labor agreements in North America. The remainder of the estimated liability, for benefits beyond the current labor agreement and for essentially all salaried employees, is classified under remaining balance of postretirement benefits.
 
(2)  Total VEBA assets were allocated based on projected spending requirements. Amount includes $1.0 billion VEBA withdrawal and $0.2 billion VEBA withdrawal in the fourth quarter of 2005.
 
(3)  Does not reflect the effect of the January 2006 agreements with information technology providers.
      The combined U.S. hourly and salaried pension plans were $7.5 billion overfunded on a Statement of Financial Accounting Standards No. 87 Basis at year-end 2005. As a result, and under normal conditions, GM does not expect to make any contribution to its U.S. hourly and salaried pension plans for the foreseeable future.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Contractual Obligations and Other Long-Term Liabilities — (continued)
      The following table provides aggregated information about our FIO segments outstanding contractual obligations and other long-term liabilities as of December 31, 2005.
Financing and Insurance Operations
                                           
    Payments due by period
     
        2011 and    
    2006   2007-2008   2009-2010   after   Total
                     
    (Dollars in millions)
Debt
  $ 82,054     $ 59,512     $ 18,801     $ 93,386     $ 253,753  
Operating lease obligations
    201       304       161       158       824  
Mortgage purchase and sale commitments
    24,619       3,463             70       28,152  
Lending commitments
    18,500       2,213       669       4,493       25,875  
Commitments to remit excess cash flows on certain loan portfolios
                      4,305       4,305  
Commitments to sell retail automotive receivables
    9,000       12,000       12,000             33,000  
Commitments to provide capital to equity method investees
    553       90       107       287       1,037  
Purchase obligations
    150       77       13             240  
                               
 
Total contractual commitments
  $ 135,077     $ 77,659     $ 31,751     $ 102,699     $ 347,186  
                               
Book Value per Share
      Book value per share represents the net assets of the Corporation divided by the number of outstanding shares and was determined based on the liquidation rights of the common stockholders. Book value per share of GM $12/3 par value common stock decreased to $25.81 at December 31, 2005, from $48.41 at December 31, 2004.
      Book value per share is a meaningful financial measure for GM, as it provides investors an objective metric based on GAAP that can be compared to similar metrics for competitors and other industry participants. The book value per share can vary significantly from the trading price of common stock since the latter is driven by investor expectations about a variety of factors, including the present value of future cash flows, which may or may not warrant financial statement recognition under GAAP.
      As of December 31, 2005, GM’s book value per share was significantly higher than the trading price of its $12/3 par value common stock. GM believes that this difference is driven mainly by marketplace uncertainty surrounding future events at GM, such as those matters discussed in the Risk Factors section above.
      We also believe the fact that GM’s book value exceeds the recent trading price of its $12/3 par value common stock is a potential indicator of impairment. Presently, none of these uncertainties warrant modification to the amounts reflected in GM’s consolidated financial statements.
Dividends
      Dividends may be paid on our $12/3 par value common stock only when, as, and if declared by GM’s Board of Directors in its sole discretion out of amounts available for dividends under applicable law. At December 31, 2005, the amount of our capital surplus plus retained earnings on a GAAP basis was about $17.6 billion. Under Delaware law, our board may declare dividends only to the extent of our statutory “surplus” (which is defined as total assets minus total liabilities, in each case at fair market value, minus

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Contractual Obligations and Other Long-Term Liabilities — (concluded)
statutory capital), or if there is no such surplus, out of our net profits for the then current and/or immediately preceding fiscal year.
      GM’s policy is to distribute dividends on its $12/3 par value common stock based on the outlook and indicated capital needs of the business. Cash dividends per share of GM $12/3 par value common stock were $2.00 in 2005, 2004, and 2003. At the February 6, 2006 meeting of the GM Board of Directors, the board approved the reduction of the quarterly dividend on GM $12/3 par value common stock from $0.50 per share to $0.25 per share, effective for the first quarter of 2006, which was paid on March 10, 2006 to holders of record as of February 16, 2006.
Employment and Payrolls
                           
Worldwide employment at December 31, (in thousands)   2005   2004   2003
             
GMNA
    173       181       190  
GME(1)
    63       61       62  
GMLAAM
    31       29       23  
GMAP(2)
    31       15       14  
GMAC
    34       34       32  
Other
    3       4       5  
                   
 
Total employees
    335       324       326  
                   
Worldwide payrolls excluding benefits (in billions)
  $ 21.5     $ 21.5     $ 20.9  
U.S. hourly payrolls excluding benefits (in billions)(3)
  $ 8.0     $ 8.7     $ 8.9  
Average labor cost per active hour worked U.S. hourly(4)
  $ 81.18     $ 73.73     $ 78.39  
 
(1)  2005 includes approximately 7,000 employees added from a former powertrain joint venture with Fiat.
 
(2)  2005 includes approximately 13,000 employees added as the result of the consolidation of GM Daewoo.
 
(3)  Includes employees “at work” (excludes laid-off employees receiving benefits).
 
(4)  Includes U.S. hourly wages and benefits divided by the number of hours worked.
Critical Accounting Estimates
      Accounting policies are integral to understanding this MD&A. The consolidated financial statements of GM are prepared in conformity with GAAP, which requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. GM’s accounting policies are described in Note 1 to the Consolidated Financial Statements. Critical accounting estimates are described in this section. An accounting estimate is considered critical if: the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made; different estimates reasonably could have been used; or if changes in the estimate that would have a material impact on the Corporation’s financial condition or results of operations are reasonably likely to occur from period to period. Management believes that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The Corporation has discussed the development, selection and disclosures of these critical accounting estimates with the Audit Committee of GM’s Board of Directors, and the Audit Committee has reviewed the Corporation’s disclosures relating to these estimates.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Critical Accounting Estimates — (continued)
Pension and Other Postretirement Employee Benefits (OPEB)
      Pension and OPEB costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions include factors such as discount rates, health care cost trend rates, expected return on plan assets, mortality rates, retirement rates, and rate of compensation increase, discussed below:
  •  Discount rates. For 2005, our discount rates are based on creating a hypothetical portfolio of high quality bonds (rated AA by a recognized rating agency) for which the timing and amount of cash inflows approximates the estimated outflows of the defined benefit plan.
 
  •  Health care cost trend rate. Our health-care cost trend rate is based on historical retiree cost data, near term health care outlook, including appropriate cost control measures implemented by GM, and industry benchmarks and surveys.
 
  •  Expected return on plan assets. Our expected return on plan assets is derived from detailed periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risk and correlations for each of the asset classes that comprise the fund’s asset mix, and recent and long-term historical performance.
 
  •  Mortality rates. Mortality rates are based on actual and projected plan experience.
 
  •  Retirement rates. Retirement rates are based on actual and projected plan experience.
 
  •  Rate of compensation increase. The rate of compensation increase for final pay plans reflects our long-term actual experience and our outlook, including contractually agreed upon wage rate increases for represented hourly employees.
      In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect GM’s pension and other postretirement obligations and future expense. As of December 31, 2005, GM had unrecognized actuarial losses of $32.1 billion for its U.S. and non U.S. pension plans, and $32.3 billion for its U.S. and non U.S. OPEB plans. These balances were accumulated by differences in actual experience compared to original assumptions accumulated over several years, in particular, the general trend of lower discount rates, driven by interest rate environments, as well as escalating health care cost trend rates. GM amortizes these amounts over the future working lives of the plan participants, accordingly higher levels of unrecognized actuarial losses will have unfavorable impacts on reported pension and OPEB expense. The recognized net actuarial losses component of total U.S. and non U.S. pension and OPEB expense for 2005, 2004, and 2003 was $4.7 billion, $3.2 billion, and $2.7 billion, respectively. The increases to the total recognized net actuarial losses for U.S. and non U.S. pension and OPEB expense in 2005, 2004, and 2003 were $1.4 billion, $0.6 billion, and $1.5 billion, respectively. The balance sheet classification of these unrecognized losses is the subject of a current FASB project.
      GM has established for its U.S. pension plans a discount rate of 5.70% for year-end 2005, which represents a 10 basis point increase from the 5.60% discount rate used at year-end 2004. GM’s U.S. pre-tax pension expense is forecasted to decrease from approximately $1.3 billion in 2005, excluding curtailments and settlements, to approximately $0.6 billion in 2006 due to the approximately 13% actual return on plan assets in 2005.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Critical Accounting Estimates — (continued)
      The following information illustrates the sensitivity to a change in certain assumptions for U.S. pension plans (as of December 31, 2005 the projected benefit obligation (PBO) for U.S. pension plans was $89 billion and the minimum pension liability charged to equity with respect to U.S. pension plans was $109 million net of tax):
                 
        Effect on
    Effect on 2006   December 31, 2005
Change in Assumption   Pre-Tax Pension Expense   PBO
         
25 basis point decrease in discount rate
  +$ 150 million     +$ 2.3 billion  
25 basis point increase in discount rate
  -$ 160 million     -$ 2.2 billion  
25 basis point decrease in expected return on assets
  +$ 220 million        
25 basis point increase in expected return on assets
  -$ 220 million        
      GM’s U.S. hourly pension plans generally provide covered U.S. hourly employees with pension benefits of negotiated, flat dollar amounts for each year of credited service earned by an individual employee. Formulas providing for such stated amounts are contained in the prevailing labor contract. Consistent with GAAP, the 2005 pre-tax pension expense and December 31, 2005 PBO do not comprehend any future benefit increases beyond the amounts stated in the currently prevailing contract that expires in September 2007. The current cycle for negotiating new labor contracts is every four years. There is no past practice of maintaining a consistent level of benefit increases or decreases from one contract to the next. However, the following data illustrates the sensitivity of pension expense and PBO to hypothetical assumed changes in future basic benefits. A 1% increase in the basic benefit for U.S. hourly employees would result in a $140 million increase in 2006 pre-tax pension expense and a $660 million increase in the December 31, 2005 PBO. A 1% decrease in the same benefit would result in a $130 million decrease in 2006 pre-tax pension expense and a $610 million decrease in the December 31, 2005 PBO.
      These changes in assumptions would have no effect on GM’s funding requirements. In addition, at December 31, 2005, a 25 basis point decrease in the discount rate would decrease stockholders’ equity by $19.5 million, net of tax; a 25 basis point increase in the discount rate would increase stockholders’ equity by $19.5 million, net of tax. The impact of greater than a 25 basis point decrease/increase in discount rate would not be proportional to the first 25 basis point decrease/increase in the discount rate.
      GM has established for its U.S. OPEB plans a discount rate of 5.45% for year-end 2005, which represents a 30 basis point reduction from the 5.75% discount rate used at year-end 2004.
      The following table illustrates the sensitivity to a change in the discount rate assumption related to GM’s U.S. OPEB plans (the U.S. accumulated postretirement benefit obligation (APBO) was a significant portion of GM’s worldwide APBO of $84.9 billion as of December 31, 2005):
                 
    Effect on 2006   Effect on
    Pre-Tax OPEB   December 31, 2005
Change in Assumption   Expense   APBO
         
25 basis point decrease in discount rate
  +$ 220 million     +$ 2.6 billion  
25 basis point increase in discount rate
  -$ 230 million     -$ 2.4 billion  
      GM assumes a 10% initial U.S. health-care cost trend rate for the 2006 calendar year and a 5.0% ultimate U.S. health-care cost trend rate projected for calendar year 2012 and beyond as of December 31, 2005. A one percentage point increase in the assumed U.S. health care trend rates for all periods would have increased the U.S. APBO by $9.3 billion at December 31, 2005, and the aggregate service and interest cost components of non-pension postretirement benefit expense for 2005 by $629 million. A one-percentage point decrease would have decreased the U.S. APBO by $7.7 billion and the aggregate service and interest cost components of non-pension postretirement benefit expense for 2005 by $516 million.

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Critical Accounting Estimates — (continued)
      The above sensitivities reflect the effect of changing one assumption at a time. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear.
      In recent years, GM estimated the discount rate for its U.S. pension and OPEB obligations by reference to Moody’s AA Index, Citibank Salomon Smith Barney’s above-median curve, and Watson Wyatt’s bond-matching model as well as benchmarking.
      Beginning with 2005 year-end valuations, GM estimates the discount rate for its U.S. pension and OPEB obligations using an iterative process based on a hypothetical investment in a portfolio of high-quality bonds and a hypothetical reinvestment of the proceeds of such bonds upon maturity (at forward rates derived from a yield curve) until its U.S. pension and OPEB obligations are fully defeased. GM incorporates this reinvestment component into its methodology because it is not feasible, in light of the magnitude and time horizon over which its U.S. pension and OPEB obligations extend, to accomplish full defeasance through direct cash flows from an actual set of bonds selected at any given measurement date. This improved methodology, considered a change in estimate, was developed during 2005 and was adopted because it was deemed superior to the previously available algorithms for estimating assumed discount rates. In particular, this approach permits a better match of future cash outflows related to benefit payments with future cash inflows associated with bond coupons and maturities in the hypothetical described above.
      GM’s discount rate estimation under this iterative process involves four steps:
      First, GM identifies a bond universe that consists of all AA-rated or higher bonds with an amount outstanding greater than $25 million. GM excludes from this universe all callable and convertible bonds, mortgage-backed and asset-backed securities and bonds with a negative credit watch. The bond universe data, including amounts outstanding, market prices, credit ratings and other relevant data, is obtained from Bloomberg.
      Second, GM creates a defeasance portfolio from the bond universe by selecting a set of bonds that would yield cash flows (through coupons, maturation and reinvestment) that are sufficient to defease its U.S. pension and OPEB obligations. Reinvestments are assumed to occur at forward rates calculated using a yield curve developed with the following methodology. For years during which the bond universe has a sufficient number of bonds, the yield curve is based on the yields of such bonds. For future years, when the bond universe does not have a sufficient number of bonds, the yield curve is extrapolated as follows:
  •  GM computes the spread between the yield curve and the swap curve (a market-based curve),
 
  •  To extrapolate the yield curve for the period beginning after the last year where substantial bonds are available in the bond universe and ending in year 50, GM adds the spread to the swap curve, which is observable over 50 years, and
 
  •  To extrapolate the yield curve beyond the 50th year, GM assumes that the last one-year forward rate on the yield curve (at the 49th year) remains constant for the remaining years.
      Third, GM determines the market value of the defeasance portfolio using the actual initial market value of the bonds selected as part of the defeasance portfolio.
      Fourth, GM computes the internal rate of return (IRR) of the defeasance portfolio based on its market value as of the measurement date and the final net cash flows from the coupons, maturations and reinvestments. GM uses this IRR as the discount rate for its U.S. pension and OPEB obligations.
      Beginning with 2005 year-end valuations, GM rounds its discount rates for its U.S. pensions and U.S. OPEB plans to the nearest 0.05 percentage point, rather than to the nearest 0.25 percentage point as in prior years.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Critical Accounting Estimates — (continued)
      Using this new methodology, GM has established for its U.S. pension plans and U.S. OPEB plans discount rates of 5.70% and 5.45%, respectively, for year-end 2005.
Sales Allowances
      At the later of the time of sale or the time an incentive is announced to dealers (applies to vehicles sold by GM and in dealer inventory), GM records as a reduction of revenue the estimated impact of sales allowances in the form of dealer and customer incentives. There may be numerous types of incentives available at any particular time. Some factors used in estimating the cost of incentives include the volume of vehicles that will be affected by the incentive programs offered by product and the rate of customer acceptance of any incentive program. If the actual number of affected vehicles differs from this estimate, or if a different mix of incentives is actually paid, the sales allowances could be affected.
Policy and Warranty
      Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of warranty claims. Management actively studies trends of warranty claims and takes action to improve vehicle quality and minimize warranty claims. See Note 16 to the Consolidated Financial Statements for the effect of retroactive adjustments to the liability for pre-existing warranties.
Impairment of Long-Lived Assets
      GM periodically reviews the carrying value of its long-lived assets held and used, other than goodwill and intangible assets with indefinite lives, and assets to be disposed of when events and circumstances warrant such a review. This review is performed using estimates of future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.
Postemployment Benefits
      Costs to idle, consolidate or close facilities and provide postemployment benefits to employees on an other than temporary basis are accrued based on management’s best estimate of the wage and benefits costs that will be incurred for qualified employees under the JOBS bank provisions of the current labor agreement through the date of its expiration in September 2007, plus estimated costs expected to be paid thereafter. These estimates include a 45% and 9% projected level of acceptance of normal and early retirement offers, respectively, made pursuant to the current labor agreement. Costs related to the idling of employees that are expected to be temporary are expensed as incurred. GM reviews the adequacy and continuing need for these liabilities on an annual basis in conjunction with its year-end production and labor forecasts. Furthermore, GM reviews the reasonableness of these liabilities on a quarterly basis.
Allowance for Credit Losses
      The allowance for credit losses is management’s estimate of incurred losses in GMAC’s consumer and commercial finance receivable and loan portfolios held for investment. Management periodically performs detailed reviews of these portfolios to determine if impairment has occurred and to assess the estimated realizable value of collateral where applicable and the adequacy of the allowance for credit losses, based on historical and current trends and other factors affecting credit quality losses. Determination of the allowance for credit losses requires management to exercise significant judgment about the timing, frequency, and severity of credit losses, which could materially affect the provision for credit losses and therefore, net income.

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Critical Accounting Estimates — (concluded)
Investments in Operating Leases
      GMAC’s investments in its leasing portfolio represent an estimate of the realizable values of the assets which is based on the residual value established at contract inception. GMAC establishes residual values at contract inception by using independently published residual value guides. Management reviews residual values periodically to determine that recorded amounts are appropriate and the operating lease assets have not been impaired. GMAC actively manages the remarketing of off-lease vehicles to maximize the realization of their value. Changes in the value of the residuals or other external factors impacting GMAC’s future ability to market the vehicles under prevailing market conditions may impact the realization of residual values. For example, a change in the estimated realizable value of 1% on the U.S. operating lease portfolio could result in a cumulative after-tax earnings impact of $41 million as of December 31, 2005, to be recognized over the remaining term of the lease portfolio.
Mortgage Servicing Rights
      The Corporation capitalizes mortgage servicing rights, which represents the capitalized value associated with the right to receive future cash flows in connection with the servicing of mortgage loans. Because residential mortgage loans typically contain a prepayment option, borrowers often elect to prepay their mortgages, refinancing at lower rates during declining interest rate environments. As such, the market value of residential mortgage servicing rights is very sensitive to changes in interest rates, and tends to decline as market interest rates decline and increase as interest rates rise.
      The Corporation capitalizes the cost of originated mortgage servicing rights based upon the relative fair market value of the underlying mortgage loans and mortgage servicing rights at the time of sale or securitization of the underlying mortgage loan. Purchased mortgage servicing rights are capitalized at cost (which approximates the fair market value of such assets) and assumed mortgage servicing rights are recorded at fair market value as of the date the servicing obligation is assumed. The carrying value of mortgage servicing rights is dependent upon whether the asset is hedged or not. Mortgage servicing rights that are hedged with derivatives which receive hedge accounting treatment, as prescribed by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” are carried at fair value. Changes in fair value are recognized in current period earnings, generally offset by changes in the fair value of the underlying derivative, if the changes in the value of the asset and derivative are highly correlated. The majority of mortgage servicing rights are hedged as part of the Corporation’s risk management program. Mortgage servicing rights that do not receive hedge accounting treatment are carried at lower of cost or fair value.
Accounting for Derivatives and Other Fair Value Measurements
      The Corporation uses derivatives in the normal course of business to manage its exposure to fluctuations in commodity prices and interest and foreign currency rates. The Corporation accounts for its derivatives on the Consolidated Balance Sheet as assets or liabilities at fair value in accordance with SFAS No. 133. Such accounting is complex and requires significant judgments and estimates involved in the estimating of fair values in the absence of quoted market prices.
      We use estimates and various assumptions in determining the fair value of many of our assets, including retained interests and securitizations of loans and contracts, mortgage servicing rights, and other investments which do not have an established market value or are not publicly traded. It is difficult to determine the accuracy of our estimates and assumptions, and our actual experience may differ materially from these estimates and assumptions. A material difference between our estimates and assumptions and our actual experience may materially adversely affect the cash flow, profitability, financial condition and business prospects of our finance, mortgage, and insurance operations.

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New Accounting Standards
      In December 2004, the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123R), requiring companies to record share-based payment transactions as compensation expense at fair market value. SFAS No. 123R further defines the concept of fair market value as it relates to such arrangements. Based on SEC guidance issued in Staff Accounting Bulletin (SAB) 107 in April 2005, the provisions of this statement will be effective for GM as of January 1, 2006. The Corporation began expensing the fair market value of newly granted stock options and other stock based compensation awards to employees pursuant to SFAS No. 123 in 2003; therefore this statement is not expected to have a material effect on GM’s consolidated financial position or results of operations.
      In December 2005, the FASB released FASB Staff Position (FSP) SFAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” which provides a practical transition election related to accounting for the tax effects of share-based payment awards to employees. The Corporation is currently reviewing the transition alternatives and will elect the appropriate alternative within one year of the adoption of SFAS 123(R).
      In April 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” requiring retrospective application as the required method for reporting a change in accounting principle, unless impracticable or a pronouncement includes specific transition provisions. This statement also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. This statement carries forward the guidance in APB Opinion No. 20, “Accounting Changes,” for the reporting of the correction of an error and a change in accounting estimate. This statement is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005.
Forward-Looking Statements
      In this report, in reports subsequently filed by GM with the SEC on Form 10-Q and filed or furnished on Form 8-K, and in related comments by management of GM, our use of the words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” “designed,” “impact,” or the negative of any of those words or similar expressions is intended to identify forward-looking statements. All statements in subsequent reports which GM may file with the SEC on Form 10-Q and filed or furnished on Form 8-K, other than statements of historical fact, including without limitation, statements about future events and financial performance, are forward-looking statements that involve certain risks and uncertainties. While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable when made, these statements are not guarantees of any events or financial results, and GM’s actual results may differ materially due to numerous important factors that may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K. Such factors include, among others, the following:
  •  The ability of GM to realize production efficiencies, to achieve reductions in costs as a result of the turnaround restructuring and health care cost reductions and to implement capital expenditures at levels and times planned by management;
 
  •  The pace of product introductions;
 
  •  Market acceptance of the Corporation’s new products;
 
  •  Significant changes in the competitive environment and the effect of competition in the Corporation’s markets, including on the Corporation’s pricing policies;
 
  •  Our ability to maintain adequate liquidity and financing sources and an appropriate level of debt;

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Forward-Looking Statements — (continued)
  •  Restrictions on GMAC’s and ResCap’s ability to pay dividends and prepay subordinated debt obligations to us;
 
  •  Changes in the existing, or the adoption of new, laws, regulations, policies or other activities of governments, agencies and similar organizations where such actions may affect the production, licensing, distribution or sale of our products, the cost thereof or applicable tax rates;
 
  •  Costs and risks associated with litigation;
 
  •  The final results of investigations and inquiries by the SEC;
 
  •  Changes in our accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, including the range of estimates for the Delphi pension benefit guarantees, which could result in an impact on earnings;
 
  •  Changes in relations with unions and employees/retirees and the legal interpretations of the agreements with those unions with regard to employees/retirees;
 
  •  Negotiations and bankruptcy court actions with respect to Delphi’s obligations to GM, negotiations with respect to GM’s obligations under the pension benefit guarantees to Delphi employees, and GM’s ability to recover any indemnity claims against Delphi;
 
  •  Labor strikes or work stoppages at GM or its key suppliers such as Delphi or financial difficulties at GM’s key suppliers such as Delphi;
 
  •  Additional credit rating downgrades and the effects thereof;
 
  •  The effect of a potential sale or other extraordinary transaction involving GMAC on the results of GM’s and GMAC’s operations and liquidity;
 
  •  Other factors affecting financing and insurance operating segments’ results of operations and financial condition such as credit ratings, adequate access to the market, changes in the residual value of off-lease vehicles, changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which our mortgage subsidiaries operate, and changes in our contractual servicing rights;
 
  •  Shortages of and price increases for fuel; and
 
  •  Changes in economic conditions, commodity prices, currency exchange rates or political stability in the markets in which we operate.
      In addition, GMAC’s actual results may differ materially due to numerous important factors that are described in GMAC’s most recent report on SEC Form 10-K, which may be revised or supplemented in subsequent reports on SEC Forms  10-Q and 8-K. Such factors include, among others, the following:
  •  The ability of GM to complete a transaction regarding a controlling interest in GMAC while maintaining a significant stake in GMAC, securing separate credit ratings and low cost funding to sustain growth for GMAC and ResCap, and maintaining the mutually beneficial relationship between GMAC and GM;
 
  •  Significant changes in the competitive environment and the effect of competition in the Corporation’s markets, including on the Corporation’s pricing policies;
 
  •  Our ability to maintain adequate financing sources;
 
  •  Our ability to maintain an appropriate level of debt;

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Forward-Looking Statements — (concluded)
  •  The profitability and financial condition of GM, including changes in production or sales of GM vehicles, risks based on GM’s contingent benefit guarantees and the possibility of labor strikes or work stoppages at GM or at key suppliers such as Delphi;
 
  •  Funding obligations under GM and its subsidiaries’ qualified U.S. defined benefits pension plans;
 
  •  Restrictions on ResCap’s ability to pay dividends and prepay subordinated debt obligations to us;
 
  •  Changes in the residual value of off-lease vehicles;
 
  •  Changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which our mortgage subsidiaries operate;
 
  •  Changes in our contractual servicing rights;
 
  •  Costs and risks associated with litigation;
 
  •  Changes in our accounting assumptions that may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings;
 
  •  Changes in the credit ratings of GMAC or GM;
 
  •  The threat of natural calamities;
 
  •  Changes in economic conditions, currency exchange rates or political stability in the markets in which we operate; and
 
  •  Changes in the existing, or the adoption of new, laws, regulations, policies or other activities of governments, agencies and similar organizations.
      Investors are cautioned not to place undue reliance on forward-looking statements. GM undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other such factors that affect the subject of these statements, except where expressly required by law.
* * * * *
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
      GM, through various market risk sensitive instruments, is exposed to market risk from changes in foreign currency exchange rates, interest rates, and certain commodity and equity security prices. GM enters into a variety of foreign exchange, interest rate, and commodity forward contracts and options, primarily to maintain the desired level of exposure arising from these risks. A risk management control system is utilized to monitor foreign exchange, interest rate, commodity and equity price risks, and related hedge positions.
      A discussion of GM’s accounting policies for derivative financial instruments is included in Note 1 to the GM Consolidated Financial Statements. Further information on GM’s exposure to market risk is included in Notes 22 and 23 to the Consolidated Financial Statements.
      The following analyses provide quantitative information regarding GM’s exposure to foreign currency exchange rate risk, interest rate risk, and commodity and equity price risk. GM uses a model to evaluate the sensitivity of the fair value of financial instruments with exposure to market risk that assumes instantaneous, parallel shifts in exchange rates, interest rate yield curves, and commodity and equity prices. For options and instruments with nonlinear returns, models appropriate to the instrument are utilized to determine the impact of market shifts. There are certain shortcomings inherent in the sensitivity analyses presented, primarily due to the assumption that exchange rates change in a parallel fashion and that interest rates change instantaneously.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Quantitative and Qualitative Disclosures About Market Risk — (concluded)
In addition, the analyses are unable to reflect the complex market reactions that normally would arise from the market shifts modeled.
Foreign Exchange Rate Risk
      GM has foreign currency exposures related to buying, selling, and financing in currencies other than the local currencies in which it operates. More specifically, GM is exposed to foreign currency risk related to the uncertainty to which future earnings or asset and liability values are exposed as the result of operating cash flows and various financial instruments that are denominated in foreign currencies. At December 31, 2005, the net fair value asset of financial instruments with exposure to foreign currency risk was approximately $6.8 billion compared to a net fair value liability of $5.8 billion at December 31, 2004. The potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency exchange rates would be approximately $1.2 billion for 2005 and 2004.
Interest Rate Risk
      GM is subject to market risk from exposure to changes in interest rates due to its financing, investing, and cash management activities. More specifically, the Corporation is exposed to interest rate risk associated with long-term debt and contracts to provide commercial and retail financing, retained mortgage servicing rights, and retained assets related to mortgage securitizations. In addition, GM is exposed to prepayment risk associated with its capitalized mortgage servicing rights and its retained assets related to securitization activities. This risk is managed with U.S. Treasury options and futures, exposing GM to basis risk since the derivative instruments do not have identical characteristics to the underlying mortgage servicing rights. At December 31, 2005 and 2004, the net fair value liability of financial instruments held for purposes other than trading with exposure to interest rate risk was approximately $41.9 billion and $51.1 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would be approximately $3.0 billion for 2005 and 2004. At December 31, 2005 and 2004, the net fair value asset of financial instruments held for trading purposes with exposure to interest rate risk was approximately $4.6 billion and $3.5 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would be approximately $127 million and $33 million for 2005 and 2004, respectively. This analysis excludes GM’s operating lease portfolio. A fair value change in the debt that funds this portfolio would potentially have a different impact on the fair value of the portfolio itself. As such, the overall effect to the fair value of financial instruments from a hypothetical change in interest rates may be overstated.
Commodity Price Risk
      GM is exposed to changes in prices of commodities used in its automotive business, primarily associated with various non-ferrous metals used in the manufacturing of automotive components. GM enters into commodity forward and option contracts to offset such exposure. At December 31, 2005 and 2004 the net fair value asset of such contracts was approximately $610 million and $431 million, respectively. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity prices would be approximately $241 million and $264 million for 2005 and 2004, respectively. This amount excludes the offsetting impact of the price risk inherent in the physical purchase of the underlying commodities.
Equity Price Risk
      GM is exposed to changes in prices of various available-for-sale equity securities in which it invests. At December 31, 2005 and 2004, the fair value of such investments was approximately $2.8 billion and $2.6 billion, respectively. The potential loss in fair value resulting from a 10% adverse change in equity prices would be approximately $280 million and $258 million for 2005 and 2004, respectively.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Management’s Report on Internal Control Over Financial Reporting
      Management is responsible for establishing and maintaining effective internal control over financial reporting of the Corporation. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
      The Corporation’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial statements.
      A material weakness is a significant deficiency, or combination of significant deficiencies, that result in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
      The following material weaknesses in GM’s internal controls were identified:
  (A)  A material weakness was identified related to our design and maintenance of adequate controls over the preparation, review, presentation and disclosure of amounts included in our consolidated statements of cash flows, which resulted in misstatements therein. Cash outflows related to certain mortgage loan originations and purchases were not appropriately classified as either operating cash flows or investing cash flows consistent with our original description as loans held for sale or loans held for investment. In addition, proceeds from sales and repayments related to certain mortgage loans, which initially were classified as mortgage loans held for investment and subsequently transferred to mortgage loans held for sale, were reported as operating cash flows instead of investing cash flows in our consolidated statements of cash flows, as required by Statement of Financial Accounting Standards No. 102 Statement of Cash Flows — Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale. Finally, certain non-cash proceeds and transfers were not appropriately presented in the Statements of Cash Flows.
  (B)  A material weakness was identified related to the fact that GM’s management did not adequately design the control procedures to account for GM’s portfolio of vehicles on operating lease with daily rental car entities, which was impaired at lease inception, and prematurely revalued to reflect increased anticipated proceeds upon disposal. This material weakness was identified in January, 2006, and remediated by discontinuing the premature revaluation of previously recognized impairments.
      Management assessed our internal control over financial reporting as of December 31, 2005, the end of our fiscal year. Management based its assessment on criteria established in the Internal Control/ Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Based on our assessment, and because of the material weakness described above, management has concluded that our internal control over financial reporting was not effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
      Our independent registered public accounting firm, Deloitte & Touche LLP, audited management’s assessment of internal control over financial reporting and has issued an attestation report on management’s assessment, included in Part II, Item 8 of this annual report on Form 10-K.
     
/s/ G. RICHARD WAGONER, JR.   /s/ FREDERICK A. HENDERSON
     
G. Richard Wagoner, Jr.
Chairman and Chief Executive Officer
March 28, 2006
  Frederick A. Henderson
Chief Financial Officer
March 28, 2006
Limitations on the Effectiveness of Controls
      Our management, including our CEO and CFO, does not expect that our Disclosure Controls or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within General Motors have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
General Motors Corporation, its Directors, and Stockholders:
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that General Motors Corporation and subsidiaries (the Corporation) did not maintain effective internal control over financial reporting as of December 31, 2005, because of the effect of the material weaknesses identified in management’s assessment, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Corporation’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment: (1) management did not design and maintain adequate controls over the preparation, review, presentation and disclosure of amounts included in the consolidated statements of cash flows, which resulted in misstatements therein, and (2) a material weakness was identified related to the fact that GM’s management did not adequately design the control procedures used to account for GM’s portfolio of vehicles on operating lease with daily rental car entities, which was impaired at lease inception and prematurely revalued to reflect increased anticipated proceeds upon disposal. As discussed in Selected Quarterly Data, management restated previously reported 2005 quarterly financial statements due to the identification of these errors. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the Consolidated Balance Sheet and the related Consolidated Statements of Income, Cash Flows, and Stockholders’ Equity of the Corporation, the Supplemental Information to the Consolidated Balance Sheet and Consolidated Statements of Income and Cash Flows and the financial statement schedule listed at Item 15 as of and for the year ended December 31, 2005 (collectively, the financial statements and financial statement schedules). This report does not affect our report on such financial statements and financial statement schedules.
In our opinion, management’s assessment that the Corporation did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Corporation has not maintained effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheet and the related Consolidated Statements of Income, Cash Flows, and Stockholders’ Equity of the Corporation as of and for the year ended December 31, 2005. Our audit also included the Supplemental Information to the Consolidated Balance Sheet and Consolidated Statements of Income and Cash Flows and the financial statement schedule listed at Item 15 (collectively, the financial statement schedules) as of and for the year ended December 31, 2005. Our report dated March 28, 2006 expressed an unqualified opinion on those financial statements and financial statement schedules and included an explanatory paragraph relating to the accounting for the estimated fair value of conditional asset retirement obligations described in Note 1.
/s/ Deloitte & Touche llp
 
Deloitte & Touche llp
Detroit, Michigan
March 28, 2006

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
General Motors Corporation, its Directors, and Stockholders:
We have audited the accompanying Consolidated Balance Sheets of General Motors Corporation and subsidiaries (the Corporation) as of December 31, 2005 and 2004, and the related Consolidated Statements of Income, Cash Flows, and Stockholders’ Equity for each of the three years in the period ended December 31, 2005. Our audits also included the Supplemental Information to the Consolidated Balance Sheets and Consolidated Statements of Income and Cash Flows and the financial statement schedule listed at Item 15 (collectively, the financial statement schedules). These financial statements and financial statement schedules are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of General Motors Corporation and subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Corporation: (1) effective December 31, 2005, began to account for the estimated fair value of conditional asset retirement obligations to conform to FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, (2) effective July 1, 2003, began consolidating certain variable interest entities to conform to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and (3) effective January 1, 2003, began expensing the fair market value of newly granted stock options and other stock-based compensation awards issued to employees to conform to Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 28, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Corporation’s internal control over financial reporting and an adverse opinion on the effectiveness of the Corporation’s internal control over financial reporting.
/s/ Deloitte & Touche llp
 
Deloitte & Touche llp
Detroit, Michigan
March 28, 2006

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Item 8.      Financial Statements and Supplementary Data
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
                           
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions except per share
    amounts)
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
                       
Total net sales and revenues (Notes 1 and 25)
  $ 192,604     $ 193,517     $ 185,837  
                   
Cost of sales and other expenses
    171,033       159,957       152,419  
Selling, general, and administrative expenses
    22,734       20,394       20,957  
Interest expense
    15,768       11,980       9,464  
                   
 
Total costs and expenses
    209,535       192,331       182,840  
                   
Income (loss) from continuing operations before income taxes, equity income and minority interests
    (16,931 )     1,186       2,997  
Income tax (benefit) expense (Note 12)
    (5,878 )     (916 )     710  
Equity income and minority interests
    595       702       612  
                   
Income (loss) from continuing operations before cumulative effect of accounting change
    (10,458 )     2,804       2,899  
(Loss) from discontinued operations (Note 3)
                (219 )
Gain on sale of discontinued operations (Note 3)
                1,179  
Cumulative effect of accounting change (Note 1)
    (109 )            
                   
 
Net income (loss)
  $ (10,567 )   $ 2,804     $ 3,859  
                   
Basic earnings (loss) per share attributable to common stocks
                       
$12/3 par value
                       
 
Continuing operations before cumulative effect of accounting change
  $ (18.50 )   $ 4.97     $ 5.17  
 
Discontinued operations
                2.14  
 
Cumulative effect of accounting change (Note 1)
    (0.19 )            
                   
Earnings (loss) per share attributable to $12/3 par value
  $ (18.69 )   $ 4.97     $ 7.31  
                   
(Loss) per share from discontinued operations attributable to
                       
 
Class H
  $     $     $ (0.22 )
                   
Earnings (loss) per share attributable to common stocks assuming dilution
                       
$12/3 par value
                       
 
Continuing operations before cumulative effect of accounting change
  $ (18.50 )   $ 4.94     $ 5.09  
 
Discontinued operations
                2.11  
 
Cumulative effect of accounting change (Note 1)
    (0.19 )            
                   
Earnings (loss) per share attributable to $12/3 par value
  $ (18.69 )   $ 4.94     $ 7.20  
                   
(Loss) per share from discontinued operations attributable to
                       
 
Class H
  $     $     $ (0.22 )
                   
Reference should be made to the notes to consolidated financial statements.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF INCOME
                           
    Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions)
AUTOMOTIVE AND OTHER OPERATIONS
                       
Total net sales and revenues (Notes 1 and 25)
  $ 158,221     $ 161,545     $ 155,831  
                   
Cost of sales and other expenses
    162,173       150,224       143,408  
Selling, general, and administrative expenses
    13,222       11,863       11,737  
                   
 
Total costs and expenses
    175,395       162,087       155,145  
Interest expense
    2,873       2,480       1,780  
Net expense from transactions with Financing and Insurance Operations (Note 1)
    497       273       297  
                   
(Loss) from continuing operations before income taxes, equity income, and minority interests
    (20,544 )     (3,295 )     (1,391 )
Income tax (benefit) (Note 12)
    (7,184 )     (2,440 )     (854 )
Equity income (loss) and minority interests
    544       710       674  
                   
Income (loss) from continuing operations before cumulative effect of accounting change
    (12,816 )     (145 )     137  
(Loss) from discontinued operations (Note 3)
                (219 )
Gain on sale of discontinued operations (Note 3)
                1,179  
Cumulative effect of accounting change (Note 1)
    (109 )            
                   
 
Net income (loss) — Automotive and Other Operations
  $ (12,925 )   $ (145 )   $ 1,097  
                   
FINANCING AND INSURANCE OPERATIONS
                       
Total revenues
  $ 34,383     $ 31,972     $ 30,006  
                   
Interest expense
    12,895       9,500       7,684  
Depreciation and amortization expense (Note 13)
    5,696       5,523       5,567  
Operating and other expenses
    9,236       8,426       8,705  
Provisions for financing and insurance losses
    3,440       4,315       3,959  
                   
 
Total costs and expenses
    31,267       27,764       25,915  
                   
Net income from transactions with Automotive and Other Operations (Note 1)
    (497 )     (273 )     (297 )
                   
Income before income taxes, equity income and minority interests
    3,613       4,481       4,388  
Income tax expense (Note 12)
    1,306       1,524       1,564  
Equity income (loss) and minority interests
    51       (8 )     (62 )
                   
 
Net income — Financing and Insurance Operations
  $ 2,358     $ 2,949     $ 2,762  
                   
The above Supplemental Information is intended to facilitate analysis of General Motors Corporation’s businesses: (1) Automotive and Other Operations; and (2) Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                       
    December 31,
     
    2005   2004
         
    (Dollars in millions)
ASSETS
Cash and cash equivalents (Note 1)
  $ 30,726     $ 35,993  
Other marketable securities (Note 7)
    19,726       21,737  
             
 
Total cash and marketable securities
    50,452       57,730  
Finance receivables — net (Note 9)
    180,793       199,600  
Loans held for sale
    21,865       19,934  
Accounts and notes receivable (less allowances)
    15,578       21,236  
Inventories (less allowances) (Note 10)
    14,354       12,247  
Assets held for sale (Note 1)
    19,030        
Deferred income taxes (Note 12)
    29,889       26,559  
Net equipment on operating leases (less accumulated depreciation) (Note 11)
    38,187       34,214  
Equity in net assets of nonconsolidated affiliates
    3,291       6,776  
Property — net (Note 13)
    40,214       39,020  
Intangible assets — net (Notes 1 and 14)
    4,339       4,925  
Other assets (Note 15)
    58,086       57,680  
             
 
Total assets
  $ 476,078     $ 479,921  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable (principally trade)
  $ 29,913     $ 28,830  
Notes and loans payable (Note 17)
    285,750       300,279  
Liabilities related to assets held for sale (Note 1)
    10,941        
Postretirement benefits other than pensions (Note 18)
    33,997       28,182  
Pensions (Note 18)
    11,304       9,455  
Deferred income taxes (Notes 12 and 16)
    4,477       7,078  
Accrued expenses and other liabilities (Note 16)
    84,060       78,340  
             
 
Total liabilities
    460,442       452,164  
Minority interests
    1,039       397  
Stockholders’ equity (Note 20)
               
$12/3 par value common stock (outstanding, 565,518,106 and 565,132,021 shares)
    943       942  
Capital surplus (principally additional paid-in capital)
    15,285       15,241  
Retained earnings
    2,361       14,062  
             
   
Subtotal
    18,589       30,245  
Accumulated foreign currency translation adjustments
    (1,722 )     (1,194 )
Net unrealized gains on derivatives
    733       589  
Net unrealized gains on securities
    786       751  
Minimum pension liability adjustment
    (3,789 )     (3,031 )
             
   
Accumulated other comprehensive loss
    (3,992 )     (2,885 )
             
     
Total stockholders’ equity
    14,597       27,360  
             
Total liabilities, minority interests and stockholders’ equity
  $ 476,078     $ 479,921  
             
Reference should be made to the notes to consolidated financial statements.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS
                     
    December 31,
     
    2005   2004
         
    (Dollars in millions)
ASSETS
Automotive and Other Operations
               
Cash and cash equivalents (Note 1)
  $ 15,187     $ 13,148  
Marketable securities (Note 7)
    1,416       6,655  
             
 
Total cash and marketable securities
    16,603       19,803  
Accounts and notes receivable (less allowances)
    7,758       6,713  
Inventories (less allowances) (Note 10)
    13,851       11,717  
Net equipment on operating leases (less accumulated depreciation) (Note 11)
    6,993       6,488  
Deferred income taxes and other current assets (Note 12)
    8,877       10,794  
             
 
Total current assets
    54,082       55,515  
Equity in net assets of nonconsolidated affiliates
    3,291       6,776  
Property — net (Note 13)
    38,466       37,170  
Intangible assets — net (Notes 1 and 14)
    1,862       1,599  
Deferred income taxes (Note 12)
    22,849       17,639  
Other assets (Note 15)
    41,103       40,844  
             
 
Total Automotive and Other Operations assets
    161,653       159,543  
Financing and Insurance Operations
               
Cash and cash equivalents (Note 1)
    15,539       22,845  
Investments in securities (Note 7)
    18,310       15,082  
Finance receivables — net (Note 9)
    180,793       199,600  
Loans held for sale
    21,865       19,934  
Assets held for sale
    19,030        
Net equipment on operating leases (less accumulated depreciation) (Note 11)
    31,194       27,726  
Other assets (Note 15)
    27,694       35,191  
Net receivable from Automotive and Other Operations (Note 1)
    4,452       2,426  
             
 
Total Financing and Insurance Operations assets
    318,877       322,804  
             
Total assets
  $ 480,530     $ 482,347  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY
Automotive and Other Operations
               
Accounts payable (principally trade)
  $ 26,182     $ 24,257  
Loans payable (Note 17)
    1,519       2,062  
Accrued expenses (Note 16)
    42,665       46,202  
Net payable to Financing and Insurance Operations (Note 1)
    4,452       2,426  
             
 
Total current liabilities
    74,818       74,947  
Long-term debt (Note 17)
    31,014       30,460  
Postretirement benefits other than pensions (Note 18)
    28,990       23,477  
Pensions (Note 18)
    11,214       9,371  
Other liabilities and deferred income taxes (Notes 12 and 16)
    22,023       16,206  
             
 
Total Automotive and Other Operations liabilities
    168,059       154,461  
Financing and Insurance Operations
               
Accounts payable
    3,731       4,573  
Liabilities related to assets held for sale
    10,941        
Debt (Note 17)
    253,217       267,757  
Other liabilities and deferred income taxes (Notes 12 and 16)
    28,946       27,799  
             
 
Total Financing and Insurance Operations liabilities
    296,835       300,129  
             
   
Total liabilities
    464,894       454,590  
Minority interests
    1,039       397  
 
Total stockholders’ equity
    14,597       27,360  
             
Total liabilities, minority interests and stockholders’ equity
  $ 480,530     $ 482,347  
             
The above Supplemental Information is intended to facilitate analysis of General Motors Corporation’s businesses: (1) Automotive and Other Operations; and (2) Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
                           
    For the Years Ended December 31,
     
    2005   2004   2003
             
    (Dollars in millions)
Cash flows from continuing operating activities
                       
Income (Loss) from continuing operations
  $ (10,458 )   $ 2,804     $ 2,899  
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities
                       
 
Depreciation and amortization expenses
    15,769       14,152       13,513  
 
Mortgages: servicing rights and premium amortization
    1,142       1,675       1,797  
 
Goodwill impairment
    712              
 
Provision for financing losses
    1,085       1,944       1,721  
 
Net gains on sale of finance receivables
    (1,695 )     (1,312 )     (2,462 )
 
Other postretirement employee benefit (OPEB) expense
    5,671       4,558       4,650  
 
OPEB payments
    (4,084 )     (3,974 )     (3,536 )
 
VEBA/ 401(h) (contributions)/ withdrawals
    3,168       (8,618 )     (3,000 )
 
Pension expense
    2,496       2,456       3,412  
 
Pension contributions
    (833 )     (919 )     (18,168 )
 
Retiree lump sum and vehicle voucher expense, net of payments
    (264 )     (329 )     923  
 
Net change in mortgage loans
    (29,119 )     (2,312 )     (4,124 )
 
Net change in mortgage securities
    (1,155 )     614       233  
 
Change in other investments and miscellaneous assets
    (653 )     83       409  
 
Change in other operating assets and liabilities
    (1,183 )     (1,644 )     (2,358 )
 
Other
    2,545       178       915  
                   
Net cash provided by (used in) continuing operating activities
  $ (16,856 )   $ 9,356     $ (3,176 )
                   
Cash flows from continuing investing activities
                       
Expenditures for property
    (8,179 )     (7,753 )     (7,091 )
Investments in marketable securities — acquisitions
    (21,800 )     (15,278 )     (28,660 )
Investments in marketable securities — liquidations
    22,537       15,911       24,253  
Net change in mortgage servicing rights
    (267 )     (326 )     (513 )
Increase in finance receivables
    (6,582 )     (38,673 )     (56,119 )
Proceeds from sale of finance receivables
    31,652       23,385       22,182  
Proceeds from sale of business units/equity investments
    846             4,148  
Dividends received from discontinued operations
                275  
Operating leases — acquisitions
    (15,496 )     (14,324 )     (11,032 )
Operating leases — liquidations
    5,362       7,696       9,604  
Investments in companies, net of cash acquired
    1,355       (60 )     (201 )
Other
    (863 )     1,359       (1,287 )
                   
Net cash provided by (used in) continuing investing activities
    8,565       (28,063 )     (44,441 )
                   
Cash flows from continuing financing activities
                       
Net increase (decrease) in loans payable
    (10,126 )     2,192       235  
Long-term debt — borrowings
    78,276       73,511       97,391  
Long-term debt — repayments
    (69,566 )     (57,822 )     (38,962 )
Proceeds from sales of treasury stocks
                60  
Cash dividends paid to stockholders
    (1,134 )     (1,129 )     (1,121 )
Other
    6,030       4,723       1,319  
                   
Net cash provided by continuing financing activities
    3,480       21,475       58,922  
                   
Effect of exchange rate changes on cash and cash equivalents
    (85 )     671       929  
                   
Net increase (decrease) in cash and cash equivalents
    (4,896 )     3,439       12,234  
Cash and cash equivalents reclassified to Assets Held for Sale
    (371 )            
Cash and cash equivalents at beginning of the year
    35,993       32,554       20,320  
                   
Cash and cash equivalents at end of the year
  $ 30,726     $ 35,993     $ 32,554  
                   
Net cash provided by operating activities of discontinued operations
                846  
Net cash used in investing activities of discontinued operations
                (629 )
Net cash provided by financing activities of discontinued operations
                918  
                   
Net increase in cash and cash equivalents of discontinued operations
                1,135  
Cash retained by discontinued operations upon disposal
                    (2,216 )
Cash reclassified as Assets of Discontinued Operations at beginning of year
                1,081  
                   
Cash included in Assets of Discontinued Operations at end of year
  $     $     $  
Reference should be made to the notes to consolidated financial statements.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                   
    For the Years Ended December 31,
     
    2005   2004   2003
             
    Automotive   Financing   Automotive   Financing   Automotive   Financing
    and Other   and   and Other   and   and Other   and
    Operations   Insurance(a)   Operations   Insurance   Operations   Insurance
                         
            (Dollars in millions)        
Cash flows from continuing operating activities
                                               
Income (loss) from continuing operations before cumulative effect of accounting change
  $ (12,816 )   $ 2,358     $ (145 )   $ 2,949     $ 137     $ 2,762  
Adjustments to reconcile income (loss) from continuing operations before cumulative effect of accounting change to net cash provided by operating activities
Depreciation and amortization expenses
    10,073       5,696       8,629       5,523       7,946       5,567  
 
Mortgages: servicing rights and premium amortization
          1,142             1,675             1,797  
 
Goodwill impairment
          712                          
 
Provision for financing losses
          1,085             1,944             1,721  
 
Net gains on sale of finance receivables
          (1,695 )           (1,312 )           (2,462 )
 
Postretirement benefits other than pensions, net of payments and VEBA contributions/withdrawals
    4,717       38       (8,048 )     14       (1,906 )     20  
 
Pension expense, net of contributions
    1,385       14       1,174       34       (13,869 )     36  
 
Net change in mortgage loans
          (29,119 )           (2,312 )           (4,124 )
 
Net change in mortgage securities
          (1,155 )           614             233  
 
Change in other investments and miscellaneous assets
    173       (826 )     (22 )     105       (207 )     616  
 
Change in other operating assets and liabilities
    (5,466 )     4,283       (268 )     (1,376 )     2,921       (5,279 )
 
Other
    1,970       575       (102 )     280       (348 )     1,263  
                                     
Net cash provided by (used in) continuing operating activities
  $ 36     $ (16,892 )   $ 1,218     $ 8,138     $ (5,326 )   $ 2,150  
                                     
Cash flows from continuing investing activities
                                               
Expenditures for property
    (7,896 )     (283 )     (7,284 )     (469 )     (6,616 )     (475 )
Investments in marketable securities — acquisitions
    (2,616 )     (19,184 )     (2,209 )     (13,069 )     (13,138 )     (15,522 )
Investments in marketable securities — liquidations
    7,663       14,874       4,609       11,302       7,109       17,144  
Net change in mortgage servicing rights
          (267 )           (326 )           (513 )
Increase in finance receivables
          (6,582 )           (38,673 )           (56,119 )
Proceeds from sales of finance receivables
          31,652             23,385             22,182  
Proceeds from sale of business units/ equity investments
    846                         4,148        
Dividends received from discontinued operations
                            275