10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549-1004

Form 10-Q

 

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

OR

 

¨ 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 1-43

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)

(313) 556-5000

Registrant’s telephone number, including area code

NA

(former name, former address and former fiscal year, if changed since last report)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  þ    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨

Do not check if smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

At May 1, 2009, the number of shares outstanding of the Registrant’s common stock was 610,562,173 shares.

Website Access to Company’s Reports

General Motors Corporation’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 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 Securities and Exchange Commission.

 

 

 


Table of Contents

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

INDEX

 

         Page No.
Part I — Financial Information

Item 1.

  Condensed Consolidated Financial Statements (Unaudited)    1
  Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008    1
  Condensed Consolidated Balance Sheets at March 31, 2009, December 31, 2008 and March 31, 2008    2
  Condensed Consolidated Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2009 and 2008    3
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008    4
  Notes to Condensed Consolidated Financial Statements    5
 

Note 1.

 

Nature of Operations

   5
 

Note 2.

 

Basis of Presentation

   5
 

Note 3.

 

Inventories

   15
 

Note 4.

 

Investment in Nonconsolidated Affiliates

   16
 

Note 5.

 

Depreciation and Amortization

   18
 

Note 6.

 

Short-Term and Long-Term Debt

   19
 

Note 7.

 

Product Warranty Liability

   22
 

Note 8.

 

Pensions and Other Postretirement Benefits

   23
 

Note 9.

 

Derivative Financial Instruments and Risk Management

   24
 

Note 10.

 

Commitments and Contingencies

   29
 

Note 11.

 

Income Taxes

   36
 

Note 12.

 

Fair Value Measurements

   37
 

Note 13.

 

Restructuring and Other Initiatives

   44
 

Note 14.

 

Impairments

   47
 

Note 15.

 

Loss Per Share

   48
 

Note 16.

 

Transactions with GMAC

   48
 

Note 17.

 

Segment Reporting

   50
 

Note 18.

 

Subsequent Events

   53

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations    54

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk    97

Item 4.

  Controls and Procedures    98
Part II — Other Information

Item 1.

  Legal Proceedings    99

Item 1A.

  Risk Factors    99

Item 5

  Other Information    123

Item 6.

  Exhibits    135

Signature

   136


Table of Contents

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

PART  I

Item 1. Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per share amounts)

(Unaudited)

 

 

     Three Months Ended
March 31,
 
     2009     2008  

Net sales and revenue

    

Automotive sales

   $ 22,232     $ 41,944  

Other revenue

     199       439  
                

Total net sales and revenue

     22,431       42,383  
                

Costs and expenses

    

Cost of sales

     24,611       38,152  

Selling, general and administrative expense

     2,497       3,699  

Other expenses

     985       1,121  
                

Total costs and expenses

     28,093       42,972  
                

Operating loss

     (5,662 )     (589 )

Equity in loss of GMAC LLC (Note 4)

     (500 )     (1,612 )

Interest expense

     (1,230 )     (805 )

Interest income and other non-operating income, net

     425       318  

Gain on extinguishment of debt (Note 6)

     906        
                

Loss before income taxes and equity income

     (6,061 )     (2,688 )

Income tax expense (benefit)

     (114 )     653  

Equity income, net of tax

     48       132  
                

Net loss

     (5,899 )     (3,209 )

Less: Net income attributable to noncontrolling interests

     (76 )     (73 )
                

Net loss attributable to GM Common Stockholders

   $ (5,975 )   $ (3,282 )
                

Loss per share, basic and diluted, attributable to GM Common Stockholders

   $ (9.78 )   $ (5.80 )
                

Weighted average common shares outstanding, basic and diluted (millions)

     611       566  
                

Cash dividends per share

   $     $ 0.25  
                

Reference should be made to the notes to the condensed consolidated financial statements.

 

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)

 

     March 31,
2009
    December 31,
2008
    March 31,
2008
 
ASSETS       

Current Assets

      

Cash and cash equivalents

   $ 11,448     $ 14,053     $ 21,601  

Marketable securities

     132       141       2,043  
                        

Total cash and marketable securities

     11,580       14,194       23,644  

Accounts and notes receivable, net

     7,567       7,918       10,471  

Inventories

     11,606       13,195       17,321  

Equipment on operating leases, net

     3,430       5,142       7,094  

Other current assets and deferred income taxes

     2,593       3,146       4,142  
                        

Total current assets

     36,776       43,595       62,672  

Non-Current Assets

      

Equity in net assets of nonconsolidated affiliates

     2,447       2,146       7,322  

Property, net

     37,625       39,665       43,294  

Goodwill and intangible assets, net

     242       265       1,093  

Deferred income taxes

     89       98       915  

Prepaid pension

     106       109       20,593  

Equipment on operating leases, net

     375       442       3,035  

Other assets

     4,630       4,719       6,784  
                        

Total non-current assets

     45,514       47,444       83,036  
                        

Total Assets

   $ 82,290     $ 91,039     $ 145,708  
                        
LIABILITIES AND STOCKHOLDERS’ DEFICIT       

Current Liabilities

      

Accounts payable (principally trade)

   $ 18,253     $ 22,259     $ 29,817  

Short-term debt and current portion of long-term debt

     25,556       16,920       8,532  

Accrued expenses

     36,989       36,429       34,806  
                        

Total current liabilities

     80,798       75,608       73,155  

Non-Current Liabilities

      

Long-term debt

     28,846       29,018       34,757  

Postretirement benefits other than pensions

     22,503       28,919       46,994  

Pensions

     24,476       25,178       11,624  

Other liabilities and deferred income taxes

     16,187       17,392       18,554  
                        

Total non-current liabilities

     92,012       100,507       111,929  
                        

Total Liabilities

     172,810       176,115       185,084  

Commitments and contingencies (Note 10)

      

Stockholders’ Deficit

      

Preferred stock, no par value, 6,000,000 shares authorized, no shares issued and outstanding

                  

Preference stock, $0.10 par value, authorized 100,000,000 shares, no shares issued and outstanding

                  

Common stock, $1 2/3 par value (2,000,000,000 shares authorized, 800,937,541 and 610,505,273 shares issued and outstanding at March 31, 2009, respectively, 800,937,541 and 610,483,231 shares issued and outstanding at December 31, 2008, respectively, and 756,637,541 and 566,100,839 shares issued and outstanding at March 31, 2008, respectively)

     1,018       1,017       944  

Capital surplus (principally additional paid-in capital)

     16,489       16,489       16,108  

Accumulated deficit

     (76,703 )     (70,727 )     (42,912 )

Accumulated other comprehensive loss

     (31,946 )     (32,339 )     (14,490 )
                        

Total GM stockholders’ deficit

     (91,142 )     (85,560 )     (40,350 )

Noncontrolling interests

     622       484       974  
                        

Total stockholders’ deficit

     (90,520 )     (85,076 )     (39,376 )
                        

Total Liabilities and Stockholders’ Deficit

   $ 82,290     $ 91,039     $ 145,708  
                        

Reference should be made to the notes to the condensed consolidated financial statements.

 

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

For the Three Months Ended March 31, 2009 and 2008

(Dollars and shares in millions)

(Unaudited)

 

    GM Stockholders                    
    Common
Stock
  Capital
Surplus
  Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income
(Loss)
    Noncontrolling
Interests
    Comprehensive
Income
(Loss)
    Total
Stockholders’
Deficit
 

Balance December 31, 2007 — as reported

  $ 943   $ 15,319   $ (39,392 )   $ (13,964 )   $       $ (37,094 )

Effects of adoption of FSP APB No. 14-1

        781     (34 )     (23 )             724  

Effects of adoption of SFAS No. 160

                        1,218         1,218  
                                             

Balance December 31, 2007 — as adjusted

  $ 943   $ 16,100   $ (39,426 )   $ (13,987 )   $ 1,218       $ (35,152 )

Net income (loss)

            (3,282 )           73     $ (3,209 )     (3,209 )

Other comprehensive income (loss)

             

Foreign currency translation adjustments

                  (511 )     (18 )     (529 )      

Unrealized loss on derivatives

                  (99 )     (272 )     (371 )      

Unrealized loss on securities

                  (117 )           (117 )      

Defined benefit plans

             

Net prior service costs

                  (218 )           (218 )      

Net actuarial gain

                  441             441        

Net transition asset / obligation

                  1             1        
                               

Other comprehensive loss

                  (503 )     (290 )     (793 )     (793 )
                   

Comprehensive loss

            $ (4,002 )  
                   

Effects of GMAC LLC adoption of SFAS No. 157 and No. 159

            (62 )                   (62 )

Stock options

    1     8                         9  

Cash dividends paid to GM Common Stockholders

            (142 )                   (142 )

Cash dividends paid to noncontrolling interests

                        (8 )       (8 )

Other

                        (19 )       (19 )
                                             

Balance March 31, 2008

  $ 944   $ 16,108   $ (42,912 )   $ (14,490 )   $ 974       $ (39,376 )
                                             

Balance December 31, 2008 — as reported

  $ 1,017   $ 15,755   $ (70,610 )   $ (32,316 )   $       $ (86,154 )

Effects of adoption of FSP APB No. 14-1

        734     (117 )     (23 )             594  

Effects of adoption of SFAS No. 160

                        484         484  
                                             

Balance December 31, 2008 — as adjusted

  $ 1,017   $ 16,489   $ (70,727 )   $ (32,339 )   $ 484       $ (85,076 )

Net income (loss)

            (5,975 )           76     $ (5,899 )     (5,899 )

Other comprehensive income (loss)

             

Foreign currency translation adjustments

                  (261 )     (27 )     (288 )      

Release of hedging losses on derivatives

                  248       116       364        

Unrealized loss on securities

                  (2 )           (2 )      

Defined benefit plans

             

Net prior service costs

                  1,683             1,683        

Net actuarial loss

                  (1,276 )           (1,276 )      

Net transition asset/obligation

                  1             1        
                               

Other comprehensive income

                  393       89       482       482  
                   

Comprehensive loss

            $ (5,417 )  
                   

Stock options

    1                             1  

Cash dividends paid to noncontrolling interests

                        (25 )       (25 )

Other

            (1 )           (2 )       (3 )
                                             

Balance March 31, 2009

  $ 1,018   $ 16,489   $ (76,703 )   $ (31,946 )   $ 622       $ (90,520 )
                                             

Reference should be made to the notes to the condensed consolidated financial statements.

 

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2009     2008  

Net cash used in operating activities

   $ (9,390 )   $ (1,590 )

Cash flows from investing activities

    

Expenditures for property

     (1,566 )     (1,945 )

Investment in GMAC LLC

     (884 )      

Increase in cash due to consolidation of CAMI

     46        

Decrease in cash and cash equivalents due to deconsolidation of Saab Automobile AB

     (41 )      

Investments in marketable securities, acquisitions

     (76 )     (1,135 )

Investments in marketable securities, liquidations

     82       1,430  

Operating leases, liquidations

     295       840  

Change in restricted cash

     (151 )     (225 )

Other

     (20 )     23  
                

Net cash used in investing activities

     (2,315 )     (1,012 )

Cash flows from financing activities

    

Net decrease in short-term debt

     (870 )     (1,078 )

Proceeds from issuance of UST Loans and UST GMAC Loan

     10,284        

Proceeds from issuance of long-term debt

     62       492  

Payments on long-term debt

     (99 )     (15 )

Fees paid for debt modification

     (63 )      

Cash dividends paid to stockholders

           (142 )
                

Net cash provided by (used in) financing activities

     9,314       (743 )

Effect of exchange rate changes on cash and cash equivalents

     (214 )     129  
                

Net decrease in cash and cash equivalents

     (2,605 )     (3,216 )

Cash and cash equivalents at beginning of the period

     14,053       24,817  
                

Cash and cash equivalents at end of the period

   $ 11,448     $ 21,601  
                

Reference should be made to the notes to the condensed consolidated financial statements.

 

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Operations

We (also General Motors Corporation, GM or the Corporation) are primarily engaged in the worldwide production and marketing of cars and trucks. We develop, manufacture and market vehicles worldwide through our four segments which consist of GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Middle East (GMLAAM) and GM Asia Pacific (GMAP). We also own a 60% equity interest in GMAC LLC (GMAC), which is accounted for under the equity method of accounting. GMAC provides a broad range of financial services, including consumer vehicle financing, automotive dealership and other commercial financing, residential mortgage services, automobile service contracts, personal automobile insurance coverage and selected commercial insurance coverage.

Note 2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles (U.S. GAAP) for complete financial statements. The accompanying condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state our results of operations, financial position and cash flows. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008 (2008 10-K) as filed with the SEC.

Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We have incurred significant losses from 2005 through the three months ended March 31, 2009, attributable to operations and to restructurings and other charges such as providing support to Delphi and past, present and future cost cutting measures. We have managed our liquidity during this time through a series of cost reduction initiatives, capital markets transactions and sales of assets. However, the global credit market crisis has had a dramatic effect on our industry. In the second half of 2008, the increased turmoil in the mortgage and overall credit markets (particularly the lack of financing to buyers or lessees of vehicles), the continued reductions in U.S. housing values, the volatility in the price of oil, recessions in the United States and Western Europe and the slowdown of economic growth in the rest of the world created a substantially more difficult business environment. The ability to execute capital markets transactions or sales of assets was extremely limited, and vehicle sales in North America and Western Europe contracted severely and the pace of vehicle sales in the rest of the world slowed. Our liquidity position, as well as our operating performance, were negatively affected by these economic and industry conditions and by other financial and business factors, many of which are beyond our control. These conditions have not improved through March 2009, and we experienced substantial negative cash flow from operations in the three months ended March 31, 2009 and reported significantly less revenue than in the corresponding period in 2008. The deteriorating economic and market conditions that have driven the drop in vehicle sales, including declines in real estate and equity values, rising unemployment, tightened credit markets, depressed consumer confidence and weak housing markets, are not likely to improve significantly during 2009 and may continue past 2009 and could get worse.

As a result of these economic conditions and the rapid decline in our sales in the three months ended December 31, 2008 we determined that, despite the far reaching actions we had then taken to restructure our U.S. business, we would be unable to pay our obligations in the normal course of business in 2009 or service our debt in a timely fashion, which required the development of a new plan that depended on financial assistance from the U.S. Government. In December 2008, we entered into a loan and security agreement (UST Loan Agreement) with the United States Department of the Treasury (UST) pursuant to which the UST agreed to provide us with a $13.4 billion secured term loan facility (UST Loan Facility). We borrowed $4.0 billion under the UST Loan Facility in December 2008, an additional $5.4 billion in January 2009 and $4.0 billion in February 2009. As further discussed below, in April

 

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

2009, we entered into an amendment to increase the availability under the loan facility to $15.4 billion and drew down the remaining $2.0 billion. As a condition to obtaining the UST Loan Facility, we agreed to achieve certain restructuring targets within designated time frames as described below.

In January 2009, we entered into a second loan and security agreement with the UST (UST GMAC Loan Agreement) pursuant to which we borrowed $884 million and utilized those funds to purchase additional common membership interests in GMAC, which increased our common equity interest in GMAC from 49% to 60%.

The loans under the UST Loan Facility and the UST GMAC Loan Agreement are scheduled to mature on December 30, 2011 and January 16, 2012, respectively. The maturity dates may be accelerated if, among other things, the President’s Designee has not certified our plan to achieve and sustain our long-term viability, international competitiveness and energy efficiency (Viability Plan) by the Certification Deadline (defined below), which was initially March 31, 2009 and has been postponed to June 1, 2009, as discussed below.

As a condition to obtaining the loans under the UST Loan Agreement, we agreed to submit a Viability Plan by February 17, 2009 that included specific actions intended to result in the following:

 

   

Repayment of all loans made under the UST Loan Agreement, together with all interest thereon and reasonable fees and out-of-pocket expenses incurred in connection therewith and all other financings extended by the U.S. government;

 

   

Compliance with federal fuel efficiency and emissions requirements and commencement of domestic manufacturing of advanced technology vehicles;

 

   

Achievement of a positive net present value, using reasonable assumptions and taking into account all existing and projected future costs;

 

   

Rationalization of costs, capitalization and capacity with respect to our manufacturing workforce, suppliers and dealerships; and

 

   

A product mix and cost structure that is competitive in the U.S. marketplace.

Key aspects of the Viability Plan we submitted on February 17, 2009 are included in our 2008 Annual Report on Form 10-K.

The UST Loan Agreement also required us to, among other things, use our best efforts to achieve the following restructuring targets:

Debt Reduction

 

   

Reduction of our outstanding unsecured public debt by not less than two-thirds through conversion of existing unsecured public debt into equity, debt and/or cash or by other appropriate means;

Labor Modifications

 

   

Reduction of the total amount of compensation, including wages and benefits, paid to our U.S. employees so that, by no later than December 31, 2009, the average of such total amount, per hour and per person, is an amount that is competitive with the average total amount of such compensation, as certified by the Secretary of the United States Department of Labor, paid per hour and per person to employees of Nissan, Toyota or Honda whose site of employment is in the United States;

 

   

Elimination of the payment of any compensation or benefits to our or our subsidiaries’ U.S. employees who have been fired, laid-off, furloughed or idled, other than customary severance pay;

 

   

Application, by December 31, 2009, of work rules for our and our subsidiaries’ U.S. employees, in a manner that is competitive with the work rules for employees of Nissan, Toyota or Honda whose site of employment is in the United States (transplant automakers); and

 

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

VEBA Modifications

 

   

Modification of our retiree healthcare obligations to the New VEBA arising under the Settlement Agreement under which responsibility for providing retiree healthcare for International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) retirees, their spouses and dependents would permanently shift from us to the New Plan funded by the New VEBA, such that payment or contribution of not less than one-half of the value of each future payment or contribution made by us to the New VEBA shall be made in the form of GM common stock, with the value of any such payment or contribution not to exceed the amount that was required for such period under the VEBA Settlement Agreement.

The UST Loan Agreement required us to submit to the President’s Designee, by March 31, 2009, a report (Company Report) detailing, among other things, the progress we had made in implementing our Viability Plan, including evidence satisfactory to the President’s Designee that: (1) the required labor modifications had been approved by the members of the leadership of each major U.S. labor organization that represents our employees; (2) all necessary approvals of the required VEBA modifications, other than judicial and regulatory approvals, had been received; and (3) exchange offers to implement the debt reduction had been commenced.

In addition, the UST Loan Agreement and the UST GMAC Loan Agreement provided that if, by March 31, 2009 or a later date (not to exceed 30 days after March 31, 2009) as determined by the President’s Designee (Certification Deadline), the President’s Designee had not certified that we had taken all steps necessary to achieve and sustain our long-term viability, international competitiveness and energy efficiency in accordance with our Viability Plan, then the loans and other obligations under the UST Loan Agreement and the UST GMAC Loan Agreement were to become due and payable on the thirtieth day after the Certification Deadline.

On March 30, 2009, the President’s Designee released the Viability Determination Statement which found that our Viability Plan, in its then-current form, was not viable and would need to be revised substantially in order to lead to a viable GM. The President’s Designee also concluded that certain steps required to be taken by March 31, 2009 under the UST Loan Agreement, including receiving approval of the required labor modifications by members of our unions, obtaining receipt of all necessary approvals of the required VEBA modifications (other than regulatory and judicial approvals) and commencing the exchange offers to implement the required debt reduction, had not been completed, and as a result, we had not satisfied the terms of the UST Loan Agreement.

In conjunction with the March 30, 2009 announcement, the administration announced that it would offer us adequate working capital financing for a period of 60 days while it worked with us to develop and implement a more accelerated and aggressive restructuring that would provide us with a sound long-term foundation. On March 31, 2009, we and the UST entered into amendments to the UST Loan Agreement and the UST GMAC Loan Agreement to postpone the Certification Deadline to June 1, 2009 and, with respect to the UST Loan Agreement, to also postpone the deadline by which we are required to provide the Company Report to June 1, 2009. In addition, on April 22, 2009 we entered into a second amendment to the UST Loan Agreement to increase the amount available for borrowing to $15.4 billion. We borrowed an additional $2.0 billion in working capital loans on April 24, 2009. In conjunction with the second amendment, we issued an additional promissory note in the amount of $133 million to the UST for which we received no additional consideration.

In response to the Viability Determination Statement, we have made further modifications to our Viability Plan to satisfy the President’s Designee’s requirement that we undertake a substantially more accelerated and aggressive restructuring plan (Revised Viability Plan), including by revising our operating plan to take more aggressive action and by increasing the amount of the debt reduction that we will seek to achieve beyond that originally required by the UST Loan Agreement.

The following is a summary of significant cost reduction and restructuring actions contemplated by our Revised Viability Plan:

Indebtedness and VEBA obligations — On April 27, 2009 we commenced exchange offers for those series of our unsecured notes set forth in the prospectus for the exchange offers to reduce our public unsecured debt in order to comply with the debt reduction condition of the UST Loan Agreement. The exchange offers are subject to a number of conditions, including that the results of the

 

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exchange offers shall be satisfactory to the UST, including in respect of the overall level of participation by holders in the exchange offers and in respect of the level of participation by holders of our Series D debentures in the exchange offers, which mature on June 1, 2009. We currently believe, and our Revised Viability Plan assumes, that at least 90% of the aggregate principal amount (or, in the case of discount notes, accreted value) of the series of our outstanding public unsecured debt included in the exchange offers (including at least 90% of the aggregate principal amount of the outstanding Series D debentures) will need to be tendered in the exchange offers or called for redemption (in the case of our non-US dollar denominated notes) in order for the results of the exchange offers to be satisfactory to the UST. Pursuant to the terms and subject to the conditions of the exchange offers, we have offered to exchange 225 shares of our common stock for each 1,000 U.S. dollar equivalent of principal amount of debt subject to the offers. If the exchange offer is consummated, we intend to effect a 1-for-100 reverse stock split of our common stock prior to the distribution of our common stock to tendering holders of our debt on the settlement date. The exchange offers expire on May 26, 2009, unless extended by us. If successful, we expect the exchange offers to be consummated upon satisfaction of all conditions to the exchange offers. This could take up to three months after the expiration of the exchange offers.

We are currently in discussions with the UST regarding the terms of a potential restructuring of our debt obligations under the UST Loan Agreement, the UST GMAC Loan Agreement, and any other debt issued or owed to the UST in connection with those loan agreements pursuant to which the UST would exchange at least 50% of the total outstanding debt we owe to it at June 1, 2009 for our common stock. These discussions are ongoing and the UST has not agreed, or indicated a willingness to agree, to any specific level of debt reduction. We have set as a condition to the closing of the exchange offers that the UST debt conversion provide for the issuance of our common stock to the UST (or its designee) in exchange for: (1) full satisfaction and cancellation of at least 50% of our outstanding UST debt at June 1, 2009 (such 50% currently estimated to be approximately $10.0 billion); and (2) full satisfaction and cancellation of our obligations under the warrant issued to the UST.

In addition, we are currently in discussions with the UAW and the VEBA-settlement class representative regarding the terms of the VEBA modifications. Although these discussions are ongoing, we have set as a condition to the closing of the exchange offers that the proposed VEBA modifications meet certain requirements that go beyond those required under the UST Loan Agreement. The VEBA modifications that will be required as a condition to the closing of the exchange offers would provide for the restructuring of the approximately $20.0 billion present value of obligations we owe under the VEBA Settlement Agreement as follows:

 

   

At least 50% of the settlement amount (approximately $10.0 billion) will be extinguished in exchange for our common stock; and

 

   

Cash installments will be paid in respect of the remaining approximately $10.0 billion settlement amount over a period of time, with such amounts and period to be agreed but together having a present value equal to the remaining settlement amount.

We have not reached an agreement with respect to either the UST debt conversion or the VEBA modifications. The actual terms of the UST debt conversion and the VEBA modifications are subject to ongoing discussions among us, the UAW, the UST and the VEBA-settlement class representative, and there is no assurance that any agreement will be reached on the terms described above or at all. However, an agreement with respect to both the UST debt conversion and the VEBA modifications is a condition to the exchange offers, and the terms of the UST debt conversion and the VEBA modifications must satisfy the minimum conditions described above or must be waived by us following notice to our bond holders under the tender offer rules. We have set as a condition to the exchange offers that the terms of the VEBA modifications shall be satisfactory to the UST.

North American Inventory — As a result of the fourth quarter 2008 U.S. vehicle market collapse, our dealers’ inventory, while historically low, is high from a days’ supply standpoint given current lower industry sales rates. To address this issue and bring inventory quantities in line with a more optimal 75 to 90 days supply, we have announced North American production reductions of approximately 190,000 vehicles during the second and early third quarters of 2009. These production reductions will result in a significant number of down weeks at many North American assembly plants, and we have announced an extended shutdown of one to seven weeks at many manufacturing facilities bridging the normal July shutdown period.

 

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U.S. Brand and Nameplate Rationalization — We will focus our resources in the U.S. on four core brands: Chevrolet, Cadillac, Buick and GMC. Compared to the Viability Plan we submitted to the President’s Designee on February 17, 2009, our Revised Viability Plan accelerates the timing of resolution for Saab Automobile AB (Saab), HUMMER and Saturn. Specifically, resolutions for Saab and HUMMER have been accelerated to 2009 versus 2010, and resolution of Saturn has been accelerated to 2009 versus 2010 to 2011. In conjunction with these accelerated nameplate eliminations, there is no planned investment for Pontiac, and the brand is expected to be phased out by the end of 2010.

On February 20, 2009 Saab filed for protection under the reorganization laws of Sweden in order to reorganize itself into a stand-alone entity independent from us. We have received final bids for HUMMER from potential purchasers and are in the process of reviewing them. We expect to make a final decision regarding a sale or phase-out of HUMMER in May 2009. We are currently evaluating opportunities regarding a potential sale of Saturn Distribution Corporation, an indirect wholly owned subsidiary, and expect to make a decision regarding a sale or phase out by the end of 2009.

Our Revised Viability Plan does not reflect the sale of the ACDelco business as previously contemplated in our Viability Plan due to current economic conditions, its integration with our business and preliminary bids from prospective purchasers which did not reflect a valuation that we believe was appropriate.

Our Revised Viability Plan also accelerates the reduction in U.S. nameplates. While the Viability Plan submitted on February 17, 2009 called for a reduction from 48 U.S. nameplates in 2008 to 36 in 2012, a 25% reduction, our Revised Viability Plan reduces the number of U.S. nameplates to 34 by 2010, a 29% reduction two years ahead of the prior plan.

U.S. Dealers and Distribution Channel Strategy — In order to allow for greater sales effectiveness in all markets, increased private investment and reduced distribution costs, our Revised Viability Plan calls for a reduction in the number of our U.S. dealers from 6,246 in 2008 to 3,605 in 2010, which is an improvement over the February 17, 2009 submission in that there will be a reduction of an additional 500 dealers, four years earlier than contemplated in the February 17, 2009 submission. Our Revised Viability Plan is intended to facilitate an orderly, customer friendly and cost-effective approach for dealer reductions and inventory disposal.

Manufacturing Operational Efficiencies — Our Viability Plan included a reduction in the total number of powertrain, stamping and assembly plants in the U.S. from 47 in 2008 to 33 in 2012. Consistent with our objective of accelerating the restructuring of our business, our Revised Viability Plan reduces the total number of such plants in the U.S. to 34 by the end of 2010 and 31 by 2012, which reflects the acceleration of six plant closures/idlings as well as one additional plant idling through 2014.

Labor Cost — Our Revised Viability Plan will reduce U.S. hourly employment levels from 61,000 in 2008 to 40,000 in 2010. This is primarily the result of the nameplate reductions, operational efficiencies and plant capacity reductions discussed previously. Our Revised Viability Plan provides for U.S. hourly employment levels that are approximately 7,000 lower in 2010 and 2011 and 8,000 lower in the 2012 through 2014 period than the Viability Plan submitted on February 17, 2009. Our Revised Viability Plan also contemplates additional reductions in our U.S. hourly labor costs as a result of reductions in hourly employment levels and modifications to our labor agreement with the UAW. The UAW has not ratified the modifications to the terms of the collective bargaining agreement that were negotiated on February 17, 2009.

With respect to our operations in Canada, we negotiated a revised labor agreement in March 2009 with the Canadian Auto Workers Union (CAW) to reduce our hourly labor costs to approximately the level paid by our U.S. transplant competitors. We will also reduce our Canadian hourly employment levels from 10,300 in 2008 to 4,400 by 2014 under our Revised Viability Plan. Our revised labor agreement is contingent on us receiving longer term financial support for our Canadian operations from both the Canadian Federal and the Ontario Provincial governments, and our negotiations with both governments remain ongoing. On April 29, 2009 GMCL entered into a Loan Agreement with Export Development Canada (EDC). The EDC Loan Agreement provides GMCL with C$3.0 billion in a 3-year short term bridge loan to restore liquidity to its business. GMCL borrowed C$0.5 billion under the EDC Loan Agreement on April 30, 2009. Since the EDC Loan Agreement is considered to be bridge financing and not longer term financing, the receipt of this financial support does not satisfy the contingency included in the CAW agreement.

 

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We previously announced that we will reduce salaried employment levels on a global basis by 10,000 during 2009. We continue to evaluate our structure and decision making processes and plan to further simplify our business, which will result in further salaried and executive manpower reductions under our Revised Viability Plan.

Additional Funding — In order to execute our Revised Viability Plan, we will request total funding from the UST of $27.0 billion, which represents the $22.5 billion we requested in our Viability Plan submission on February 17, 2009 under our baseline scenario plus an additional $4.5 billion to implement incremental restructuring actions, cover our higher negative operating cash flow primarily due to lower forecasted vehicle sales volume in North America, and to compensate for lower than originally forecasted proceeds from asset sales and other sources of financing, including U.S. Department of Energy Section 136 Loans, under the Energy Independence and Security Act of 2007, for production of advanced technology vehicles and components. Our Revised Viability Plan assumes $5.7 billion of Section 136 Loans and an additional $5.6 billion in funding from foreign governments (of which we received C$0.5 billion from EDC on April 30, 2009). As previously discussed, we borrowed $2.0 billion of additional working capital loans from the UST on April 24, 2009. We also expect to request an additional $2.6 billion of working capital loans prior to June 1, 2009 and plan to issue a promissory note in the amount of $173 million to the UST for no additional consideration.

In addition, our Revised Viability Plan assumes that we will require an additional $9.0 billion of UST funding after June 1, 2009. We have proposed that the UST provide the additional $9.0 billion of funding, together with the additional $2.6 billion referred to above, on similar terms to the UST Loan Agreement. If we were to receive this additional $9.0 billion funding, we plan to issue a promissory note in the amount of $600 million to the UST for no additional consideration.

Bankruptcy Relief — In the event that we do not receive prior to June 1, 2009 enough tenders of our public unsecured debt to consummate the exchange offers we currently expect to seek relief under the U.S. Bankruptcy Code. This relief may include: (1) seeking bankruptcy court approval for the sale of most or substantially all of our assets pursuant to section 363(b) of the U.S. Bankruptcy Code to a new operating company, and a subsequent liquidation of the remaining assets in the bankruptcy case; (2) pursuing a plan of reorganization (where votes for the plan are solicited from certain classes of creditors prior to a bankruptcy filing) that we would seek to confirm (or “cram down”); or (3) seeking another form of bankruptcy relief, all of which involve uncertainties, potential delays and litigation risks. We are considering these alternatives in consultation with the UST, our largest lender.

Our ability to continue as a going concern is dependent on many events outside of our direct control, including, among other things, approval of the Revised Viability Plan by the UST; obtaining additional financing from the UST, other governmental entities or other sources to continue operations; the successful execution of the restructuring actions discussed above; successful negotiation with the UAW to reduce our labor costs and funding obligations for retiree health care; our ability to successfully complete the exchange offers; our ability to continue to procure necessary components, systems and parts from Delphi and other suppliers; GMAC continuing to provide financing to our dealers and customers; and consumers’ purchasing our products in substantially higher volumes. Our significant recent operating losses and negative cash flows, negative working capital, stockholders’ deficit and the uncertainty of UST approval of the Revised Viability Plan, the UST funding of the Revised Viability Plan and successful execution of our Revised Viability Plan, among other factors, raise substantial doubt as to our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

On April 30, 2009, Chrysler LLC and certain of its affiliates filed petitions seeking relief under Chapter 11 of the United States Bankruptcy Code. In connection with its bankruptcy filing, Chrysler LLC announced that most of its manufacturing operations will be temporarily idled beginning May 4, 2009. The resulting decline in automotive production volumes and the risk that payments owed to suppliers by Chrysler LLC may be disrupted as a result of Chrysler LLC’s bankruptcy filing will increase the financial and liquidity pressures facing automotive suppliers, many of which are common to Chrysler LLC and us. The failure of automotive suppliers on whom we rely would result in a disruption in the availability of the systems, components and parts that we need to manufacture our automotive products, which would affect our operating results adversely.

 

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Principles of Consolidation

Our condensed consolidated financial statements include our accounts and those of our subsidiaries that we control due to ownership of a majority voting interest. In addition, we consolidate variable interest entities (VIE) for which we are the primary beneficiary. Our share of earnings or losses of nonconsolidated affiliates are included in our consolidated operating results using the equity method of accounting when we are able to exercise significant influence over the operating and financial decisions of the affiliate. We use the cost method of accounting if we are not able to exercise significant influence over the operating and financial decisions of the affiliate. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the 2008 financial information to conform to the current period presentation.

As a result of a strategic review of Saab, the Saab board announced on February 20, 2009, that Saab filed for reorganization under a self-managed Swedish court process, which is similar to U.S. Chapter 11 bankruptcy protection, to create a fully independent business entity that would be sustainable and suitable for investment. Though aspects of our strategic review of Saab commenced in 2008, negotiations with the Swedish government pertaining to financial support for Saab commenced in January 2009. The ultimate determination to file for reorganization was made in February 2009 once it became clear that the Swedish government would not provide financial assistance. Prior to the filing for reorganization Saab’s results of operations were included in our GME segment.

As part of the process, Saab will formulate its proposal for reorganization and present it to its creditors. Pending court approval, the reorganization will be executed and will require independent funding to succeed.

We determined that the reorganization filing resulted in a loss of the elements of control necessary for consolidation and therefore we deconsolidated Saab on February 20, 2009. The operating results of Saab are reflected in our condensed consolidated statement of operations through the date of deconsolidation, and subsequent to the date of deconsolidation we account for our investment in Saab under the cost method.

We recorded a loss of $822 million in Other expenses related to the deconsolidation of Saab in the three months ended March 31, 2009. The loss reflects the remeasurement of our net investment in Saab to its estimated fair value of zero, costs associated with commitments and obligations to suppliers and others, and a commitment to provide up to $150 million of debtor-in-possession financing.

The following tables summarize condensed financial information related to Saab for the period subsequent to deconsolidation:

 

     March 31,
2009
     (Dollars in millions)

Total assets

   $ 928

Total liabilities (a)

   $ 1,762

 

(a) Includes $1.1 billion of payables to us that we have fully reserved for at March 31, 2009.

 

     February 20, 2009 to
March 31, 2009
 
     (Dollars in millions)  

Sales (a)

   $ 106  

Net loss

   $ (53 )

 

(a) Includes $58 million of sales made by Saab to us.

Change in Presentation of Financial Statements

Due to the restructuring efforts associated with our Revised Viability Plan as previously discussed, the resulting focus on our core automotive business, and significant changes in our ownership interests in and ability to influence the operations of GMAC, our financial statements no longer present our FIO operations as a separate segment, which resulted in the following changes to the

 

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condensed consolidated financial statements in the three months ended March 31, 2009: (1) Financial services and insurance revenue were reclassified to Other Revenue; (2) Financial services and insurance expense was reclassified to Other expenses; and (3) separate FIO balance sheet line items are no longer presented. Certain reclassifications were made to the comparable 2008 financial statements to conform to the current period presentation.

Use of Estimates in the Preparation of the Financial Statements

Our condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which require 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 revenue and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in future periods.

Changes in Accounting Principles

Fair Value Measurements

On January 1, 2008 we adopted SFAS No. 157, “Fair Value Measurements,” which provides a consistent definition of fair value that focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over company-specific inputs. SFAS No. 157 requires expanded disclosures about fair value measurements and establishes a three-level hierarchy for fair value measurements based on the observable inputs to the valuation of an asset or liability at the measurement date. The standard also requires that a company consider its own nonperformance risk when measuring liabilities carried at fair value, including derivatives. In February 2008 the FASB approved FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157,” that permitted companies to partially defer the effective date of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, and we elected to do so. On January 1, 2009, we adopted SFAS No. 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The effect of our adoption of SFAS No. 157 on January 1, 2009 for nonfinancial assets and nonfinancial liabilities and on January 1, 2008 for financial assets and financial liabilities was not material and no adjustment to Accumulated deficit was required.

The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of SFAS No. 115

On January 1, 2008 we adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115,” which permits a company to measure certain financial assets and financial liabilities at fair value that were not previously required to be measured at fair value. We have not elected to measure any financial assets and financial liabilities at fair value which were not previously required to be measured at fair value. Therefore, the adoption of this standard has had no effect on our results of operations.

Business Combinations

On January 1, 2009 we adopted SFAS No. 141(R), “Business Combinations,” which retained the underlying concepts under existing standards that all business combinations are accounted for at fair value under the acquisition method of accounting. However, SFAS No. 141(R) changes the method of applying the acquisition method in a number of significant aspects. SFAS No. 141(R) requires that: (1) for all business combinations, the acquirer record all assets and liabilities of the acquired business, including goodwill, generally at their fair values; (2) pre-acquisition contingent assets and liabilities acquired be recognized at their fair values on the acquisition date if determinable; (3) contingent consideration be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value be recognized in earnings until settled; (4) acquisition-related transaction and restructuring costs be expensed rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired;

 

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(5) in step acquisitions, previous equity interests in an acquiree held prior to obtaining control be re-measured to their acquisition-date fair values, with any gain or loss recognized in earnings; and (6) when making adjustments to finalize initial accounting, companies revise any previously issued post-acquisition financial information in future financial statements to reflect any adjustments as if they had been recorded on the acquisition date. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109, “Accounting for Income Taxes,” such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R) should also apply the provisions of this standard. This standard will be applied to all future business combinations.

Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133

On January 1, 2009 we adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133,” which expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” See Note 9 for the tabular and narrative disclosures pertaining to the adoption of SFAS No. 161.

Noncontrolling Interests in Consolidated Financial Statements

On January 1, 2009 we adopted SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51,” which amends ARB No. 51, “Consolidated Financial Statements,” to establish new standards that govern the accounting for and reporting of noncontrolling interests in partially-owned consolidated subsidiaries and the loss of control of subsidiaries. SFAS No. 160 requires that: (1) noncontrolling interest, previously referred to as minority interest, be reported as part of equity in the consolidated financial statements; (2) losses be allocated to a noncontrolling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest; (3) changes in ownership interests be treated as equity transactions if control is maintained; (4) changes in ownership interests resulting in gain or loss be recognized in earnings if control is gained or lost; and (5) in a business combination the noncontrolling interest’s share of net assets acquired be recorded at the fair value, plus its share of goodwill. The provisions of SFAS No. 160 are prospective upon adoption, except for the presentation and disclosure requirements. The presentation and disclosure requirements must be applied retrospectively for all periods presented. Accordingly, our condensed consolidated balance sheets as of December 31, 2008 and March 31, 2008, and our condensed consolidated statements of operations and condensed consolidated statement of stockholders’ deficit for the three months ended March 31, 2008 have been retrospectively adjusted to adopt SFAS No. 160. If we had applied the previous requirements of ARB No. 51, our pro forma Net loss attributable to GM Common Stockholders would decrease $40 million and our pro forma Loss per share, basic and diluted, attributable to GM Common Stockholders would decrease $0.07 per share.

Accounting for Convertible Debt Instruments

On January 1, 2009 we adopted FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement),” which requires issuers of convertible debt securities within its scope to separate these securities into a debt component and an equity component, resulting in the debt component being recorded at fair value without consideration given to the conversion feature. Issuance costs are also allocated between the debt and equity components. FSP No. APB 14-1 requires that convertible debt within its scope reflect a company’s nonconvertible debt borrowing rate when interest expense is recognized. The provisions of FSP No. APB 14-1 are retrospective upon adoption, and prior period amounts have been adjusted to apply the new method of accounting. As a result of the adoption of FSP No. APB 14-1, Interest expense and Net loss for the three months ended March 31, 2009 each increased by $30 million and Net loss per share, basic and diluted increased by $0.05 per share.

 

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The following tables summarize the effect of adopting SFAS No. 160 and FSP No. APB 14-1:

 

     Condensed Consolidated Statement of Operations for the
Three Months Ended March 31, 2008
 
         As Previously    
Reported
    FSP No.
APB 14-1
    SFAS
No. 160
    As
Reported
 
     (Dollars in millions)  

Interest expense

   $ (774 )   $ (31 )   $     $ (805 )

Loss from continuing operations before income taxes, equity income and minority interests (a)

   $ (2,657 )   $ (31 )   $     $ (2,688 )

Minority interest, net of tax

   $ (73 )   $     $ 73     $  

Net loss

   $ (3,251 )   $ (31 )   $ 73     $ (3,209 )

Net income attributable to noncontrolling interests

   $     $     $ 73     $ 73  

Net loss attributable to GM Common Stockholders

   $     $     $ (3,282 )   $ (3,282 )

Net loss attributable to GM Common Stockholders per share, basic and diluted

   $ (5.74 )   $ (0.06 )   $     $ (5.80 )
     Condensed Consolidated Balance Sheet as of
March 31, 2008
 
     As Previously
Reported(b)(c)
    FSP No.
APB 14-1
    SFAS
No. 160
    As
Reported
 
     (Dollars in millions)  

Other assets, noncurrent

   $ 6,260     $ (33 )   $     $ 6,227  

Total assets

   $ 145,741     $ (33 )   $     $ 145,708  

Short-term debt and current portion of long-term debt

   $ 8,532     $     $     $ 8,532  

Total current liabilities

   $ 73,155     $     $     $ 73,155  

Other liabilities and deferred income taxes, noncurrent

   $ 18,554     $     $     $ 18,554  

Long-term debt

   $ 35,483     $ (726 )   $     $ 34,757  

Total liabilities

   $ 185,810     $ (726 )   $     $ 185,084  

Minority Interest

   $ 974     $     $ (974 )   $  

Capital surplus (principally additional paid-in-capital)

   $ 15,327     $ 781     $     $ 16,108  

Accumulated deficit

   $ (42,847 )   $ (65 )   $     $ (42,912 )

Accumulated other comprehensive loss

   $ (14,467 )   $ (23 )   $     $ (14,490 )

Noncontrolling interests

   $     $     $ 974     $ 974  

Total Stockholders’ Deficit

   $ (41,043 )   $ 693     $ 974     $ (39,376 )
     Condensed Consolidated Balance Sheet as of
December 31, 2008
 
     As Previously
Reported(b)(c)
    FSP No.
APB 14-1
    SFAS
No. 160
    As
Reported
 
     (Dollars in millions)  

Other assets, noncurrent

   $ 4,246     $ (8 )   $     $ 4,238  

Total assets

   $ 91,047     $ (8 )   $     $ 91,039  

Short-term debt and current portion of long-term debt

   $ 16,946     $ (26 )   $     $ 16,920  

Total current liabilities

   $ 75,634     $ (26 )   $     $ 75,608  

Other liabilities and deferred income taxes, noncurrent

   $ 17,392     $     $     $ 17,392  

Long-term debt

   $ 29,594     $ (576 )   $     $ 29,018  

Total liabilities

   $ 176,717     $ (602 )   $     $ 176,115  

Minority Interest

   $ 484     $     $ (484 )   $  

Capital surplus (principally additional paid-in-capital)

   $ 15,755     $ 734     $     $ 16,489  

Accumulated deficit

   $ (70,610 )   $ (117 )   $     $ (70,727 )

Accumulated other comprehensive loss

   $ (32,316 )   $ (23 )   $     $ (32,339 )

Noncontrolling interests

   $     $     $ 484     $ 484  

Total Stockholders’ Deficit

   $ (86,154 )   $ 594     $ 484     $ (85,076 )

 

(a) Loss before income taxes and equity income as reported.

 

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(b) As a result of the elimination of FIO as a segment, as discussed previously, this column includes the reclassifications of the balance sheet line items previously reported as FIO Assets and FIO Liabilities in order to conform to the current period presentation.

 

(c) In connection with the adoption of SFAS No. 160, we determined that certain immaterial amounts previously recognized in Minority interest should have been recognized as liabilities. Accordingly, we have reclassified $330 million and $395 million from Minority interest to Other liabilities and deferred income taxes, noncurrent at December 31, 2008 and March 31,2008, respectively, which has been comprehended in the “As Previously Reported” column.

Other

In 2007 and 2008, the FASB ratified FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities,” EITF No. 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock,” EITF No. 07-1, “Accounting for Collaborative Arrangements,” and EITF No. 08-3, “Accounting by Lessees for Nonrefundable Maintenance Deposits.” We adopted these standards on January 1, 2009, and none of these standards had a significant effect on our consolidated financial statements.

Accounting Standards Not Yet Adopted

In April 2009, the FASB issued three staff positions intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of debt securities. The first, FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” provides guidelines for determining fair value measurements consistently with the principles presented in SFAS No. 157 when the volume and level of activity for the asset or liability has significantly decreased, and provides guidance on identifying circumstances that indicate that a transaction is not orderly. The second, FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” expands the frequency of fair value disclosures for publicly traded entities about the fair value of certain financial instruments not recognized at fair value in the statement of financial position to include interim reporting periods. The third, FSP No. FAS 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” amends the other-than-temporary impairment guidance for debt securities, and modifies the presentation and disclosure requirements for all other-than-temporary impairments. The staff positions are effective for interim and annual reporting periods ending after June 15, 2009 with early adoption permitted of all three FSPs together. We did not early adopt these FSPs. We do not anticipate that the adoption of these staff positions will have a material effect on our financial position or results of operations, though our assessment is ongoing.

Note 3. Inventories

The following table summarizes the components of our inventories:

 

     March 31,
2009
    December 31,
2008
    March 31,
2008
 
     (Dollars in millions)  

Productive material, work in process, and supplies

   $ 4,910     $ 4,849     $ 7,071  

Finished product including service parts

     7,872       9,579       11,710  
                        

Total inventories at FIFO

     12,782       14,428       18,781  

Less LIFO allowance

     (1,176 )     (1,233 )     (1,460 )
                        

Total inventories

   $ 11,606     $ 13,195     $ 17,321  
                        

In the three months ended March 31, 2009 and 2008, in accordance with our lower of cost or market analyses we have recorded lower of cost or market adjustments to our finished goods inventories, including rental car returns and company vehicles, of $19 million and $13 million, respectively.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Note 4. Investment in Nonconsolidated Affiliates

The following table summarizes information regarding our equity in income (loss) of our nonconsolidated affiliates:

 

     Three Months Ended
March 31,
 
         2009             2008      
     (Dollars in millions)  

GMAC

   $ (500 )   $ (302 )

GMAC Common Membership Interest impairments

           (1,310 )
                

Total Equity in loss of GMAC LLC

     (500 )     (1,612 )

Shanghai General Motors Co., Ltd and SAIC-GM-Wuling Automobile Co., Ltd.

     105       134  

Others

     (57 )     (2 )
                

Total equity in loss of nonconsolidated affiliates

   $ (452 )   $ (1,480 )
                

Investment in GMAC

Purchase of Additional Common Membership Interests

In December 2008 we and FIM Holdings entered into a subscription agreement with GMAC under which we each agreed to purchase additional Common Membership Interests in GMAC, and the UST committed to provide us with additional funding in order to purchase the additional interests. In January 2009, we entered into the UST GMAC Loan Agreement pursuant to which we borrowed $884 million and utilized those funds to purchase 190,921 Class B Common Membership Interests of GMAC. The UST GMAC Loan is scheduled to mature on January 16, 2012 and bears interest, payable quarterly, at the same rate of interest as the loans under the UST Loan Agreement (UST Loans). Refer to Note 6. The UST GMAC Loan is secured by our Common and Preferred Membership Interests in GMAC. As part of this loan agreement, the UST has the option to convert outstanding amounts into a maximum of 190,921 shares of GMAC’s Class B Common Membership Interests on a pro-rata basis. As a result of this purchase, our interest in GMAC’s Common Membership Interests increased from 49% to 60%.

The following tables summarize financial information of GMAC:

 

     Three Months Ended
March 31,
 
         2009             2008      
     (Dollars in millions)  

Condensed Consolidated Statements of Income

    

Total financing revenue and other interest income

   $ 3,812     $ 5,404  

Interest expense

   $ 2,181     $ 3,179  

Depreciation expense on operating lease assets

   $ 1,153     $ 1,397  

Total other revenue

   $ 1,721     $ 1,582  

Total noninterest expense

   $ 2,154     $ 2,507  

Loss before income tax (benefit) expense

   $ (798 )   $ (571 )

Income tax (benefit) expense

   $ (123 )   $ 18  

Net loss

   $ (675 )   $ (589 )

Net loss available to members

   $ (798 )   $ (615 )

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

     March 31,
2009
   December 31,
2008
   March 31,
2008
     (Dollars in millions)

Condensed Consolidated Balance Sheets

        

Loans held for sale

   $ 10,357    $ 7,919    $ 21,446

Total finance receivables and loans, net

   $ 92,357    $ 96,640    $ 119,433

Investment in operating leases, net

   $ 23,527    $ 26,390    $ 33,122

Other assets

   $ 23,531    $ 26,608    $ 31,446

Total assets

   $ 179,552    $ 189,476    $ 243,354

Total debt

   $ 113,424    $ 126,321    $ 185,294

Accrued expenses, deposit and other liabilities

   $ 35,165    $ 32,533    $ 32,039

Total liabilities

   $ 157,531    $ 167,622    $ 228,590

Senior preferred interests

   $ 5,000    $ 5,000    $

Preferred interests

   $ 1,287    $ 1,287    $ 1,052

Total equity

   $ 22,021    $ 21,854    $ 14,764

GMAC — Preferred and Common Membership Interests

The following table summarizes information related to our Preferred and Common Membership Interests in GMAC:

 

     March 31,
2009
   December 31,
2008
   March 31,
2008
     (Dollars in millions)

Preferred Membership Interests (shares)

     1,021,764      1,021,764      1,021,764

Percentage ownership of Preferred Membership Interests issued and outstanding

     100%      100%      100%

Carrying value of Preferred Membership Interests

   $ 43    $ 43    $ 902

Carrying value of Common Membership Interests

   $ 754    $ 491    $ 5,391

The following table summarizes the impairment charges we have recorded against our investment in GMAC Common and Preferred Membership Interests:

 

     Three Months Ended
March 31,
     2009    2008
     (Dollars in millions)

GMAC Common Membership Interests

   $   —    $ 1,310

GMAC Preferred Membership Interests

          142
             

Total impairment charges

   $    $ 1,452
             

Impairment charges are recorded in Equity in loss of GMAC LLC and Interest income and other non-operating income, net for our investment in GMAC Common and Preferred Membership Interests, respectively.

Our measurements of fair value were determined in accordance with SFAS No. 157, utilizing Level 3 inputs of the fair value hierarchy established in SFAS No. 157. Refer to Note 12 for further information on the specific valuation methodology.

In the three months ended March 31, 2009, we received dividends of $26 million related to our Preferred Membership Interests.

In the three months ended March 31, 2008, we accrued dividends of $26 million related to our Preferred Membership Interests and such dividend income was subsequently reversed as GMAC was not required under the terms of the Preferred Membership Interests to, and elected not to, pay a dividend on our Preferred Membership Interests.

 

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Refer to Note 16 for a description of the related party transactions with GMAC.

Transactions with Nonconsolidated Affiliates

Our nonconsolidated affiliates are involved in various aspects of the development, production and marketing of cars, trucks and parts. The following tables summarize the effects of our transactions with nonconsolidated affiliates which are not eliminated in consolidation:

 

     Three Months Ended
March 31,
     2009    2008
     (Dollars in millions)

Results of Operations

     

Automotive sales

   $ 247    $ 289

Cost of sales

   $ 376    $ 1,116

Selling, general and administrative expense

   $ 13    $ 31

Interest income and other non-operating income, net

   $ 1    $ 2

 

     March 31,
2009
   December 31,
2008
   March 31,
2008
     (Dollars in millions)

Financial Position

        

Accounts and notes receivable, net

   $ 371    $ 394    $ 574

Accounts payable (principally trade)

   $ 158    $ 112    $ 197

 

     Three Months Ended
March 31,
 
     2009     2008  
     (Dollars in millions)  

Cash Flows

    

Operating

   $ 389     $ (482 )

Investing

   $ 10     $ 27  

Financing

   $ (2 )   $  

Note 5. Depreciation and Amortization

The following table summarizes depreciation and amortization, including asset impairment charges, included in Cost of sales and Selling, general and administrative expense:

 

     Three Months Ended
March 31,
     2009    2008
     (Dollars in
millions)

Depreciation and impairment of long-lived assets

   $ 1,482    $ 1,437

Amortization and impairment of special tools

     1,036      772

Amortization of intangible assets

     22      20
             

Total depreciation, amortization and asset impairments

   $ 2,540    $ 2,229
             

In accordance with our Revised Viability Plan, we have initiated restructuring programs to reduce the total number of our powertrain, stamping and assembly plants and to eliminate certain brands and nameplates. As a result, total depreciation, amortization and asset impairments includes accelerated depreciation of $404 million in the three months ended March 31, 2009 on certain of these assets as they will be utilized over a shorter period of time than their previously estimated useful life.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Note 6. Short-Term and Long-Term Debt

The following table summarizes the components of short-term and long-term debt:

 

     March 31,
2009
   December 31,
2008
   March 31,
2008
     (Dollars in millions)

Short-term debt — third parties

   $ 3,250    $ 2,567    $ 1,359

Short-term debt — related parties (a)

     1,489      2,067      2,544

Current portion of long-term debt (b)

     20,817      12,286      4,629
                    

Total short-term debt and current portion of long-term debt

     25,556      16,920      8,532

Total long-term debt

     28,846      29,018      34,757
                    

Total debt

   $ 54,402    $ 45,938    $ 43,289
                    

 

(a) Primarily dealer financing from GMAC for dealerships we own.

 

(b) At March 31, 2009 primarily includes UST Loans and UST GMAC Loan of $14.5 billion (net of $578 million discount), secured revolving credit facility of $4.5 billion and a U.S. term loan of $540 million (net of $930 million discount). At December 31, 2008 includes UST Loans of $3.8 billion (net of $913 million discount), secured revolving credit facility of $4.5 billion and a U.S. term loan of $1.5 billion.

We pay commitment fees on our credit facilities at rates negotiated in each agreement. Amounts paid and expensed for these commitment fees are insignificant. Amounts available under short-term line of credit agreements were $347 million, $186 million and $2.8 billion at March 31, 2009, December 31, 2008 and March 31, 2008, respectively.

In connection with the preparation of our consolidated financial statements for the year ended December 31, 2008, we concluded that there was substantial doubt about our ability to continue as a going concern and our independent auditors included a statement in their audit report related to the existence of substantial doubt about our ability to continue as a going concern. Because our auditors included such a statement in their audit report, we would have been in violation of the debt covenants for our $4.5 billion secured revolving credit facility, our $1.5 billion U.S. term loan and our $125 million secured credit facility and we therefore secured amendments and waivers related to those obligations as described below.

Additionally, one of our Powertrain subsidiaries in Italy has debt obligations to banks in the amount of $66 million at March 31, 2009, which are subject to certain covenants. Due to the current, and potential continued, downturn in the industry, it is possible that the subsidiary could, in the future, be in violation of certain these covenants. If amendments, waivers or alternative forms of financing could not be secured at such time, the operations of the subsidiary could be negatively impacted.

Secured Revolving Credit Facility

On February 11, 2009 we entered into an agreement to amend our $4.5 billion secured revolving credit facility, which expires July 2011. The amendment included a waiver of the going concern covenant for the year ended December 31, 2008, revised borrowing and default interest rates, and cross-default provisions to the UST Loan Facility. We accounted for the amendment as a debt modification and therefore capitalized the additional fees paid to acquire the amendment. The additional fees will be amortized ratably through July 2011.

U.S. Term Loan

On March 4, 2009 we entered into an agreement to amend our $1.5 billion U.S. term loan, which expires November 2013. The amendment included a waiver of the going concern covenant for the year ended December 31, 2008, revised borrowing and default rates, and cross-default provisions to the UST Loan Facility. Because the terms of the amended U.S. term loan were substantially

 

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different than the original terms, primarily due to the revised borrowing rate, we accounted for the amendment as a debt extinguishment. As a result, we recorded the amended U.S. term loan at fair value and recorded a gain on the extinguishment of the original loan facility of $906 million in the three months ended March 31, 2009.

Secured Credit Facility

On February 11, 2009, we entered into an agreement to amend our $125 million secured credit facility, which was scheduled to expire in November 2009. The amendment included a waiver of the going concern covenant for the year ended December 31, 2008, revised borrowing and default rates, cross-default provisions to the UST Loan Facility, and an extension of the maturity date to November 2010. As a result of the terms of the amendment, we accounted for the amendment as a troubled debt restructuring and therefore will amortize the outstanding debt balance using the revised effective interest rate calculated in accordance with the new loan terms.

As a result of the amendments and waivers described previously, we are not in default of our covenants. If we conclude that there is substantial doubt about our ability to continue as a going concern for the year ending December 31, 2009, we will have to seek additional amendments or waivers at that time. Due to the cross-default provisions to the UST Loan Facility included in each of the amendments and because the UST can terminate the UST Loan Facility if it does not certify our Revised Viability Plan, the UST Loan Facility, secured revolving credit facility, U.S. term loan and secured credit facility are classified as short-term debt.

United States Department of the Treasury Loan Facility

As previously disclosed in our 2008 Form 10-K and in Note 2, in December 2008 we entered into the UST Loan Agreement pursuant to which the UST agreed to provide us with the UST Loan Facility. We borrowed $4.0 billion under the UST Loan Facility in December 2008, and an additional $5.4 billion and $4.0 billion in January and February 2009, respectively. In April 2009, we and the UST entered into an amendment to the UST Loan Agreement that increased the maximum amount available to borrow under the UST Loan Facility from $13.4 billion to $15.4 billion. Pursuant to this agreement, we borrowed an additional $2.0 billion under the amended UST Loan Facility on April 24, 2009 and issued a promissory note to the UST for $133 million for which we received no additional consideration. The additional promissory note is subject to the terms of the Warrant Agreement between us and the UST, which was entered into in December 2008 and is described in further detail below.

The UST Loans are scheduled to mature on December 30, 2011, unless the maturity date is accelerated in the event the UST has not certified our Revised Viability Plan by the Certification Deadline on June 1, 2009. Refer to Note 2. Amounts outstanding under the UST Loan Facility accrue interest at a rate per annum equal to the three-month LIBOR rate (which will be no less than 2.0%) plus 3.0%, and accrued interest is payable quarterly, beginning March 31, 2009.

We are required to repay the UST Loans from the net cash proceeds received from certain dispositions of collateral securing the UST Loans, the incurrence of certain debt and certain dispositions of unencumbered assets. We may also voluntarily repay the UST Loans in whole or in part at any time. Once repaid, amounts borrowed under the UST Loan Facility may not be reborrowed.

The UST Loan Agreement also contains various events of default and entitles the UST to accelerate the repayment of the UST Loans upon the occurrence and during the continuation of an event of default. In addition, upon the occurrence and continuation of any default or event of default, at the UST’s option, the interest rate applicable to the UST Loans can be increased to a rate per annum equal to 5.0% per annum plus the interest rate otherwise applicable to the UST Loans (or if no interest rate is otherwise applicable, the three-month LIBOR rate plus 3.0%). The events of default relate to, among other things, our failure to pay principal or interest on the UST Loans; the Guarantors’, who are each of our domestic subsidiaries that executed the UST Loan Agreement, failure to pay on their guarantees; the failure to pay other amounts due under the loan documents; the failure to perform the covenants in the loan documents; the representations and warranties in the UST Loan Agreement being false or misleading in any material respect; undischarged judgments in excess of $500 million; certain bankruptcy events; the termination of any loan documents, the invalidity of security interests in the collateral or the unenforceability of our and the Guarantors’ obligations; certain prohibited transactions under

 

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the Employee Retirement Income Security Act of 1974; a change of control; a default under indebtedness if the default permits or causes the holder to accelerate the maturity of indebtedness in excess of $100 million; the failure to comply with any law that results in a material adverse effect; the entry into a transaction prohibited by the UST; or the failure to comply with the warrant agreement between us and the UST, entered into on December 31, 2008 (Warrant Agreement) in connection with the UST Loan Agreement. We also are prohibited from paying dividends without the consent of the UST under the terms of the UST Loan Agreement and, if we declare a dividend in excess of $100 million, without the approval of the President’s Designee.

On December 31, 2008, pursuant to the Warrant Agreement, we also issued to the UST a promissory note in the amount of $749 million (UST Additional Note) for no additional consideration. The amounts outstanding under the UST Additional Note are due on December 30, 2011. The UST Additional Note bears interest, payable quarterly, at the same rate of interest as the UST Loans under the UST Loan Agreement. If any payment on the UST Additional Note is not paid when due, or if we or our subsidiaries default under, fail to perform as required under, or otherwise materially breach the terms of any instrument or contract for indebtedness between us and the UST, all accrued interest, principal and other amounts owing under the UST Additional Note would become immediately due and payable. The amounts owing at the time of the occurrence and continuation of any default or events of default bear interest at the same post default interest rate as the UST Loans under the UST Loan Agreement.

In the three months ended March 31, 2009, the President’s Designee determined that the Viability Plan we submitted on February 17, 2009 was not viable in its then-current form had not satisfied the terms of the UST Loan Agreement. The President’s Designee agreed to provide us with adequate working capital for 60 days and postponed our Certification Deadline until June 1, 2009 to give us time to develop our Revised Viability Plan. Refer to Note 2. Due to the possible acceleration of the maturity date of the UST Loans and UST Additional Note if the President’s Designee has not certified our Revised Viability Plan by the above date and ongoing discussions with the UST regarding a potential restructuring of our debt obligations under the UST Loan Agreement, we accelerated amortization of the discount on the UST Loans and UST Additional Notes and recorded $334 million in Interest expense in the three months ended March 31, 2009. The remaining discount will be amortized ratably through the Certification Deadline. At March 31, 2009, advances under the UST Loan Facility and the UST Additional Note were carried at $14.5 billion in the current portion of long-term debt (net of the $578 million discount).

Contingent Convertible Debt

We adopted the provisions of FSP APB No. 14-1 on January 1, 2009, with retrospective application to prior periods. (Refer to Note 2). At March 31, 2009, our contingent convertible debt outstanding amounted to $7.4 billion, consisting of outstanding principal of $7.9 billion and unamortized discounts of $572 million. The discounts of $572 million at March 31, 2009 will be amortized through the maturity dates or the initial put dates of the related debt, ranging from 2009 to 2018. At December 31, 2008, our contingent convertible debt outstanding amounted to $7.3 billion, consisting of principal of $7.9 billion and unamortized discounts of $602 million. At March 31, 2008, our contingent convertible debt outstanding amounted to $7.7 billion, consisting of outstanding principal of $8.4 billion and unamortized discounts of $726 million. Upon adoption of FSP APB No. 14-1, the effective interest rate on our outstanding contingent convertible debt ranges from 7.0% to 7.9%. We recorded interest expense of $136 million in the three months ended March 31, 2009, consisting of $106 million of cash interest and $30 million resulting from amortization of the discounts. We recorded interest expense of $142 million in the three months ended March 31, 2008, consisting of $107 million of cash interest and $35 million resulting from amortization of the discounts. At March 31, 2009, the net carrying value of the conversion feature for all contingent convertible debt outstanding recorded in Stockholders’ deficit was $734 million.

Receivables Program

On March 19, 2009 the UST announced an automotive supplier support program (Receivables Program) developed to provide liquidity and access to credit to automotive suppliers. The Receivables Program allows suppliers to sell their eligible accounts receivable from us to GM Supplier Receivables LLC (GM Receivables), a bankruptcy-remote special purpose entity we have established. Eligible suppliers can elect to either receive immediate payment from GM Receivables on their receivables from us at a 3% discount or have their receivables from us guaranteed by the UST for a 2% fee. GM Receivables will be funded by a loan facility

 

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of up to $3.5 billion provided by the UST and by capital contributions from us of up to $175 million. GM Receivables will be included in our consolidated financial statements and amounts borrowed from the UST and used to pay suppliers will result in Short-term debt with a corresponding decrease in Accounts payable or Accrued expenses. GM Receivables will be responsible for paying interest on any loans provided by the UST at an annual rate of LIBOR plus 3.5%, with a minimum of 5.5%, and for paying administrative fees of 25 basis points per annum of the average daily program balance to a third party administrator. We will be responsible for paying a termination fee of up to $140 million to the UST upon expiration or termination of the Receivables Program. Any residual capital in the program will be shared equally by us and the UST. We paid our initial $35 million capital contribution to GM Receivables on April 29, 2009 and have begun the process of qualifying certain suppliers of goods and services to participate in the Receivables Program. At May 1, 2009 the Receivables Program had not been implemented and no funding from the UST had been received. We expect to be able to implement this program within several weeks.

Note 7. Product Warranty Liability

The following table summarizes activity for policy, product warranty, recall campaigns and certified used vehicle warranty liabilities:

 

     Three Months
Ended
March 31,

2009
    Year Ended
December 31,

2008
    Three Months
Ended
March 31,

2008
 
     (Dollars in millions)  

Beginning balance

   $ 8,491     $ 9,615     $ 9,615  

Warranties issued in period

     535       4,277       1,020  

Payments

     (917 )     (5,068 )     (1,180 )

Adjustments to pre-existing warranties

     (25 )     294       4  

Effect of foreign currency translation

     (107 )     (627 )     58  

Liability adjustment, net due to the deconsolidation of Saab

     (77 )            
                        

Ending balance

   $ 7,900     $ 8,491     $ 9,517  
                        

We review and adjust these estimates on a regular basis based on the differences between actual experience and historical estimates or other available information.

On March 30, 2009 the U.S. Government announced that it will create a warranty program pursuant to which a separate account will be created and funded to pay for repairs covered by our warranty on each new vehicle we sell in the United States and Mexico during our restructuring period. The cash contribution to fund the program will be equal to 125% of the costs projected by us that are required to satisfy anticipated claims under the warranties issued on those vehicles. We will contribute cash equal to a portion of the projected cost and we will borrow the amount necessary to make the remaining required cash contribution from the UST. We are still discussing with the UST the ultimate scope, structure, and terms of the warranty program. We are also in discussions with the Canadian Government, which has committed to establishing a similar warranty program in Canada.

 

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Note 8. Pensions and Other Postretirement Benefits

The following table summarizes the components of pension and other postemployment benefits (OPEB) expense (income):

 

     U.S. Plans
Pension Benefits
    Non-U.S. Plans
Pension Benefits
    U.S. Other
Benefits
    Non-U.S.
Other Benefits
 
     Three Months Ended
March 31,
    Three Months Ended
March 31,
    Three Months Ended
March 31,
    Three Months Ended
March 31,
 
     2009     2008     2009     2008     2009     2008     2009     2008  
     (Dollars in millions)  

Components of (income) expense

                

Service cost

   $ 118     $ 150     $ 76     $ 105     $ 33     $ 75     $ 6     $ 10  

Interest cost

     1,467       1,292       277       320       775       913       48       60  

Expected return on plan assets

     (1,824 )     (2,060 )     (160 )     (252 )     (212 )     (344 )            

Amortization of prior service cost (credit)

     206       210       7       9       (494 )     (465 )     (26 )     (25 )

Amortization of transition obligation

                       2                          

Recognized net actuarial loss

     338       66       83       69       13       187       9       27  

Curtailments, settlements and other

           217       26       5       (30 )     4              
                                                                

Net periodic pension and OPEB (income) expense

   $ 305     $ (125 )   $ 309     $ 258     $ 85     $ 370     $ 37     $ 72  
                                                                

U.S. Hourly Workforce Special Attrition Programs

In February 2009, we announced the 2009 Special Attrition Program for our U.S. hourly employees. The 2009 Special Attrition Program offers a cash incentive of $20,000 coupled with a car voucher of $25,000 for individuals who elect to retire or voluntarily terminate employment. Consistent with the terms of the UST Loan Agreement, the incentives paid to employees electing to participate in this program will not be paid from pension plan assets. In total, 7,000 of our employees accepted this program resulting in a charge of $296 million recorded in Cost of sales. Refer to Note 13 for details. These employees represent approximately 11.5% of our active hourly employees that participate in the U.S. hourly benefit plans. However, due to the high proportion of retirement eligible employees accepting the 2009 Special Attrition Program, we were not required to remeasure our U.S. hourly benefit plans for the three months ended March 31, 2009.

In February 2008, we signed agreements with the UAW and the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers – Communication Workers of America (IUE-CWA) regarding special attrition programs which were intended to reduce the number of hourly employees. The UAW attrition program (2008 UAW Special Attrition Program) offered to our 74,000 UAW-represented employees consisted of wage and benefit packages for normal and voluntary retirements, buyouts or pre-retirement employees with 26 to 29 years of service. In addition to their vested pension benefits, those employees that were retirement eligible received a lump sum payment, depending upon classification, that was funded from our U.S. Hourly Pension Plan. For those employees not retirement eligible, other retirement and buyout options were offered. The terms offered to the 2,300 IUE-CWA represented employees (2008 IUE-CWA Special Attrition Program) were similar to those offered through the 2008 UAW Special Attrition Program. During the three months ended March 31, 2008, we recorded expenses of $201 million primarily for the 2008 UAW Special Attrition Program and the 2008 IUE-CWA Special Attrition Program. Included in the $201 million expensed in the three months ended March 31, 2008 was $167 million recorded in the Curtailments, settlements and other line of U.S. Plans Pension Benefits. Those costs included lump sum payments and other costs related to pre-retirement benefit payments for irrevocable acceptances through March 31, 2008 under the 2008 UAW Special Attrition Program and 2008 IUE-CWA Special Attrition Program.

U.S. Salaried Benefits Changes

We also announced a reduction of Salaried Retiree Life benefits for U.S. salaried employees. As a result of this plan amendment and our expectation that the corresponding reduction to operating expense would be significant, we remeasured our U.S. Salaried Retiree Life Insurance plan effective February 1, 2009. As part of this remeasurement, we utilized a discount rate of 7.15% as

 

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compared to the discount rate of 7.25% that was utilized at December 31, 2008. The remeasurement reduced the plan’s accumulated postretirement benefit obligation (APBO) by $420 million from December 31, 2008. The remeasurement will reduce Cost of sales in 2009 by approximately $70 million.

2009 UAW National Agreement Addendum

In February 2009, the UAW tentatively agreed to an addendum, subject to union ratification, to the 2007 UAW National Agreement that suspends certain compensation and employee benefits available to the UAW employees pursuant to the 2007 UAW National Agreement. The addendum includes a provision that enables us to suspend the JOBS Program and reclassify employees to layoff status eligible for supplemental unemployment benefits which was implemented during the first quarter and has a lower cost to us. Refer to Note 13 for details. At March 31, 2009, this addendum had not yet been ratified by the UAW. As a result, other than suspension of the JOBS Program, we have not included the effects of the addendum in our consolidated financial statements.

2009 CAW Agreement

In March 2009, we announced that the members of the CAW had ratified the 2009 CAW Agreement intended to reduce manufacturing costs in Canada by closing the competitive gap with transplant automakers in the United States on active employee labor costs and reducing our legacy costs through introducing co-payments for health benefits, increasing employee healthcare cost sharing, freezing pension benefits, and eliminating cost of living adjustments to pensions for retired hourly workers. The 2009 CAW Agreement is conditioned on us receiving longer term financial support from the Canadian and Ontario Governments. At March 31, 2009, we had not reached agreement with the Canadian and Ontario Governments on longer term financial support. On April 29, 2009 GMCL entered into a Loan Agreement with EDC. The EDC Loan Agreement provides GMCL with C$3.0 billion in a 3-year short term bridge loan to restore liquidity to its business. GMCL borrowed C$0.5 billion under the EDC Loan Agreement on April 30, 2009. Since the EDC Loan Agreement is considered to be bridge financing and not longer term financing, the receipt of this financial support does not satisfy the contingency included in the CAW agreement. Therefore, due to this unfulfilled condition, we have not recognized the effect of this agreement in our consolidated financial statements.

Other Workforce Changes

In addition to the actions described above, certain other changes to our workforce occurred during the three months ended March 31, 2009, some of which resulted in the remeasurement of those affected plans. However, the effect of those remeasurements was not significant to our consolidated financial statements.

Note 9. Derivative Financial Instruments and Risk Management

Risk Management

We are exposed to certain risks related to our ongoing business operations. We enter into derivative instruments with the objective of managing our financial and operational exposure arising from these risks by offsetting the gains and losses on the underlying exposures with the related gains and losses on the derivatives used to hedge them. The primary risks managed by using derivative instruments are foreign currency risk, interest rate risk, and commodity price risk. We typically use forward contracts, swaps and options as part of our risk management program. Our risk management policies limit our use of derivative instruments to those to be used in managing risk.

Our risk management control system is used to assist in monitoring the hedging program, derivative positions and hedging strategies. Our hedging documentation includes hedging objectives, practices and procedures, and the related accounting treatment. Hedges that receive designated hedge accounting treatment are evaluated for effectiveness at the time they are designated as well as throughout the hedging period.

 

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To the extent we identify that an exposure hedged with a derivative contract is no longer forecasted to occur, we enter into a new derivative instrument to offset the exposure related to the existing derivative instrument. In some cases, counterparties are unwilling to enter into offsetting derivative instruments and, as such, we have exposure to future changes in the fair value of these derivatives with no underlying exposure to offset this risk. In the three months ended March 31, 2009 we recognized a net gain of $86 million in Interest income and other non-operating income, net related to derivatives originally entered to hedge an exposure that is no longer forecasted to occur.

Adjustments made to a derivative that is in an asset or liability position due to counterparty credit rating would reverse as the derivative contract approaches maturity. The effect of the credit adjustment reversal would be accelerated if the contract were settled prior to its maturity. We are currently assessing our derivative positions and we may choose to recoupon or settle certain trades based on economic considerations. When such transactions are executed, they may result in adjustments to earnings and an inflow or outflow of cash based on whether the position is an asset or a liability. The size of such cash flows could be substantial if the derivative position is large.

Derivatives and Hedge Accounting

We recognize our derivative instruments as either assets or liabilities at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated as and qualifies as part of a hedging relationship and on the type of hedging relationship. We designate hedging instruments based upon the exposure being hedged as either a fair value hedge, or a cash flow hedge. Foreign currency denominated debt is designated as the hedging instrument in our hedges of net investments in foreign operations. We may also manage risks with nondesignated derivative contracts, commonly referred to as economic hedges.

We entered into certain derivative instruments which were originally designated in hedging relationships. As part of our quarterly tests for hedge effectiveness during the fourth quarter of 2008 we were unable to conclude that these hedging relationships continued to be highly effective in achieving offsetting cash flows with the underlying forecasted transactions and hedged items. Therefore, effective October 1, 2008 we discontinued hedge accounting on all previously designated derivative contracts. While our derivative contracts are no longer afforded hedge accounting treatment, we continue to use them to manage our risk exposures. At March 31, 2009, no outstanding derivative contracts are designated in hedging relationships.

Accordingly, subsequent to September 2008 we account for the changes in the fair value of all outstanding derivative contracts as nondesignated hedges by recording the gains and losses in earnings. We also recognize in earnings certain releases of deferred gains and losses arising from previously designated cash flow and fair value hedges.

Cash Flow Hedges

We previously designated financial instruments as cash flow hedges to manage our exposure to certain foreign currency exchange risks associated with buying and selling vehicles and automotive parts, and foreign currency exposure to long-term debt. For foreign currency transactions, we typically hedged forecasted exposures up to three years in the future. For foreign currency exposure on long-term debt we typically hedged for the life of the loan. The longest such exposure economically hedged at March 31, 2009 extends to July 2033.

For derivatives that were designated as qualifying cash flow hedges, we recorded the effective portion of the unrealized and realized gain or loss resulting from changes in fair value as a component of Other comprehensive loss. We subsequently reclassify those cumulative gains and losses to earnings contemporaneously with and to the same line item as the earnings effects of the hedged item. However, if we conclude it is probable that the forecasted transaction will not occur, the cumulative change in the fair value of the derivative recorded in Accumulated other comprehensive loss is recognized in earnings immediately. During the three months ended March 31, 2009 we reclassified a $151 million loss to Automotive sales from Accumulated other comprehensive loss relating to the cash flows hedges associated with these previously forecasted transactions we concluded were no longer probable of occurring.

 

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The following table summarizes the activity in Accumulated other comprehensive loss associated with cash flow hedges, primarily related to the release of previously deferred cash flow hedge gains and losses from Accumulated other comprehensive loss into earnings:

 

Original Cash

Flow Hedging Relationship

   Location of
Gain (Loss)
Reclassified into Net Loss
   Gain (Loss) Reclassified
During the
Three Months
Ended March 31, 2009
    Gain (Loss)
Expected to be
Reclassified During
the Next 12 Months
 
          (Dollars in millions)  

Foreign exchange contracts

   Automotive sales      (238 )     (462 )

Foreign exchange contracts

   Cost of sales      20       25  
                   

Total

      $ (218 )   $ (437 )
                   

Fair Value Hedges

We are subject to market risk from exposures to changes in interest rates that affect the fair value of our long-term, fixed rate debt. Prior to October 2008, we used interest rate swaps designated as fair value hedges to manage certain of our exposures associated with these borrowings. We hedged our exposures to the maturity date of the underlying interest rate exposure. At March 31, 2009 the longest such exposure covered by derivatives which previously received fair value hedge treatment extends to April 2016.

Gains or losses on derivatives designated and qualifying as fair value hedges, as well as the offsetting loss or gain on the debt attributable to the hedged interest rate risk, were recognized in Interest expense. The loss or gain recognized related to the hedged interest rate risk was recognized as an adjustment to the carrying value of the debt.

Previously recorded adjustments to the carrying value of the debt are amortized to Interest expense over the remaining debt term. During the three months ended March 31, 2009, we amortized previously deferred fair value hedges gains of $2 million into Interest expense. In the next twelve months, we expect to amortize previously deferred gains of $8 million into Interest expense.

Net Investment Hedges

We use foreign currency denominated debt to hedge foreign currency exposure related to our net investment in certain foreign subsidiaries. For non-derivative instruments that are designated as and qualify as a hedge of a net investment in a foreign operation, the unrealized and realized gain or loss is recorded as a Foreign currency translation adjustment in Other comprehensive loss.

The latest maturing debt tranche used to hedge net investments matures in July 2033. The following table summarizes our outstanding foreign currency net investment hedges at March 31, 2009 and related amount recognized in Other comprehensive loss for the three months ended March 31, 2009:

 

Net Investment

Hedge Instrument

   Currency Pair    Carrying Amount    Effective Portion of
Gain (Loss)
Recognized in OCI
   Amount of Gain (Loss)
Released from OCI
into Net Loss
   Amount of Gain (Loss)
Recognized in Net Loss
on Ineffective Portion
               (Dollars in millions)     

Euro denominated debt

   Euro/U.S. Dollar    $ 1,970    $ 125    $     —    $     —

Derivatives Not Designated for Hedge Accounting

We use derivatives not designated in a hedging relationship such as forward contracts, swaps, and options, to economically hedge certain of our risk exposures. Unrealized and realized gains and losses related to these nondesignated derivative hedges are recorded in the Statement of Operations as indicated in the schedules below.

 

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Commodity Derivatives

We purchase for use in production certain raw materials, parts with significant commodity content, and energy comprising various commodities. We hedge the commodity price risk by entering into derivative instruments such as forward and option contracts. All commodity derivative gains and losses are recognized in Cost of sales.

The following table summarizes our nondesignated commodity derivative contracts at March 31, 2009:

 

Commodity

   Contract
Notional
   Units
     (thousands)     

Aluminum and aluminum alloy

   398    Metric tons

Copper

   40    Metric tons

Lead

   50    Metric tons

Palladium

   1,225    Troy ounces

Platinum

   192    Troy ounces

Rhodium

   27    Troy ounces

Heating oil

   35,973    Gallons

Natural gas

   7,396    Megatherms

Interest Rate Derivatives

We use interest rate swaps to economically hedge exposure to change in the fair value of our fixed rate debt. Gains and losses related to the changes in the fair value of these nondesignated derivatives are recorded in Interest expense.

At March 31, 2009, we were party to nondesignated interest rate swap derivatives with total notional amounts of $4.3 billion.

Foreign Currency Derivatives

We use foreign exchange derivatives to economically hedge our exposure to foreign currency exchange risks associated with forecasted foreign currency denominated purchases and sales of inventory and variability in cash flows related to interest and principal payments on foreign currency denominated bonds. The gains and losses related to these derivatives that economically hedge vehicle and inventory sales and purchases are recorded in Automotive sales or Cost of sales. The gains and losses related to derivatives that economically hedge foreign currency risk related to foreign currency denominated debt are recorded in Cost of sales.

At March 31, 2009, we were party to nondesignated foreign currency exchange contracts with total notional amounts of $16.1 billion.

Equity Derivatives

In connection with our loan agreement made with the UST, we granted a warrant for 122 million shares of our common stock exercisable at $3.57 per share. At March 31, 2009, we determined that the fair value of the warrant issued to the UST was $66 million. Gains and losses related to this derivative are recorded in Interest income and other non-operating income, net.

 

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The following table summarizes the fair value of the nondesignated derivative instruments at March 31, 2009:

 

     Asset Derivatives
Fair Value(a)
   Liability Derivatives
Fair Value(b)
     (Dollars in millions)

Current Portion

     

Foreign currency contracts

   $ 587    $ 1,184

Interest rate contracts

     1      3

Commodity contracts

     19      158

Equity contracts (UST Warrant)

          66
             

Total nondesignated derivative instruments

   $ 607    $ 1,411
             
     Asset Derivatives
Fair Value(c)
   Liability Derivatives
Fair Value(d)
     (Dollars in millions)

Non-Current Portion

     

Foreign currency contracts

   $ 106    $ 620

Interest rate contracts

     378     

Commodity contracts

     4      247
             

Total nondesignated derivative instruments

   $ 488    $ 867
             

 

(a) Recorded in Other current assets and deferred income taxes.

 

(b) Recorded in Accrued expenses.

 

(c) Recorded in Other assets.

 

(d) Recorded in Other liabilities and deferred income taxes.

The following schedule summarizes the gain or loss recognized on our nondesignated derivatives in the three months ended March 31, 2009:

 

Derivatives Not Designated

as Hedging Instruments

  

Statement of Operations Line

   Amount of Gain (Loss)
Recognized in Earnings
 
          (Dollars in millions)  

Foreign exchange contracts

  

Automotive sales

   $ 60  

Foreign exchange contracts

  

Cost of sales

     (137 )

Foreign exchange contracts

  

Interest income and other non-operating income, net

     86  

Interest rate contracts

  

Interest expense

     14  

Commodity contracts

  

Cost of sales

     (134 )

Equity contracts (UST Warrant)

  

Interest income and other non-operating income, net

     98  
           

Total

      $ (13 )
           

Counterparty Credit Risk

Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties which owe us under the contract completely fail to perform under the terms of those contracts, assuming no recoveries of underlying collateral, as measured by the market value of the derivative financial instrument. At March 31, 2009, the market value of derivative financial instruments in an asset or receivable position was $1.1 billion. We enter into agreements with counterparties that allow the set-off of certain exposures in order to manage the risk.

 

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Our counterparty credit risk is managed by our Risk Management Committee, which establishes exposure limits for both net fair value and potential exposure, based on our overall risk tolerance. We monitor and report our exposures to the Risk Management Committee on a periodic basis. Substantially all of our counterparty exposures are with counterparties that are rated A or higher.

Credit-Risk-Related Contingent Features

Our agreements with counterparties to our derivative instruments do not contain covenants requiring us to maintain certain credit rating levels or credit risk ratios that would require us to post collateral in event that we violated certain standards or when a derivative instrument is in a liability position. Accordingly, at March 31, 2009, we have posted no collateral related to our $2.3 billion liability position for derivative instruments.

Note 10. Commitments and Contingencies

Guarantees

We have provided guarantees related to the residual value of certain operating leases. At March 31, 2009, the maximum potential amount of future undiscounted payments that we could be required to pay under these guarantees was $107 million. These guarantees terminate in years ranging from 2011 to 2035. Certain leases contain renewal options.

We have agreements with third parties that guarantee the fulfillment of certain suppliers’ commitments and other related obligations. These guarantees expire in years ranging from 2009 to 2015, or upon the occurrence of specific events, such as a company’s cessation of business. At March 31, 2009 we have recorded liabilities of $43 million related to these guarantees. At March 31, 2009, the maximum potential future undiscounted payments that we could be required to pay under these guarantees was $502 million. Included in this amount is $441 million which relates to a guarantee provided to GMAC in Brazil in connection with dealer floor plan financing. This guarantee is collateralized by $494 million in certificates of deposit purchased from GMAC to which we have title and which are recorded in Other assets. The purchase of the certificates of deposit was funded in part by contributions from dealers for which we have recorded a corresponding deposit liability of $359 million, which is recorded in Other liabilities.

In some instances, certain assets of the party whose debt or performance we have guaranteed may offset, to some degree, the cost of the guarantee. The offset of certain of our payables to guaranteed parties may also offset certain guarantees, if triggered.

We also provide payment guarantees on commercial loans made by GMAC and outstanding with certain third parties, such as dealers or rental car companies. At March 31, 2009, the maximum commercial obligations we guaranteed related to these loans was $79 million and the guarantees either expire in years ranging from 2009 to 2017 or are ongoing. We determined the value ascribed to the guarantees to be insignificant based on the credit worthiness of the third parties.

In connection with certain divestitures of assets or operating businesses, we have entered into agreements indemnifying certain buyers and other parties with respect to environmental conditions pertaining to real property we owned. Also, in connection with such divestitures, we have provided guarantees with respect to benefits to be paid to former employees relating to pensions, postretirement health care and life insurance. Aside from indemnifications and guarantees related to Delphi, discussed below, it is not possible to estimate our maximum exposure under these indemnifications or guarantees due to the conditional nature of these obligations. No amounts have been recorded for such obligations as they are not probable and estimable at this time.

In addition to the guarantees and indemnifying agreements mentioned above, we periodically enter into agreements that incorporate indemnification provisions in the normal course of business. Due to the nature of these agreements, the maximum potential amount of future undiscounted payments to which we may be exposed cannot be estimated. No amounts have been recorded for such indemnities as our obligations under them are not probable and estimable at this time.

Refer to Note 16 for additional information on guarantees that we provide to GMAC.

 

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Environmental

Our operations, like operations of other companies engaged in similar businesses, are subject to a wide range of environmental protection laws, including laws regulating air emissions, water discharges, waste management and environmental remediation. We are in various stages of investigation or remediation for sites where contamination has been alleged. We are involved in a number of actions to remediate hazardous wastes as required by federal and state laws. Such statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site.

The future effect of environmental matters, including potential liabilities, is often difficult to estimate. We record an environmental reserve when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. This practice is followed whether the claims are asserted or unasserted. We expect that the amounts reserved, $294 million, $297 million and $322 million at March 31, 2009, December 31, 2008 and March 31, 2008, respectively, will be paid over the periods of remediation for the applicable sites, which typically range from five to 30 years. Of the amounts recorded, $122 million, $97 million and $133 million were recorded within Accrued Expenses at March 31, 2009, December 31, 2008 and March 31, 2008, respectively, and the remainder were recorded within Other Liabilities.

For many sites, the remediation costs and other damages for which we ultimately may be responsible may vary because of uncertainties with respect to factors such as our connection to the site or to materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies and remediation to be undertaken (including the technologies to be required and the extent, duration and success of remediation).

The final outcome of environmental matters cannot be predicted with certainty at this time. Accordingly, it is possible that the resolution of one or more environmental matters could exceed the amounts accrued in an amount that could be material to our financial condition and results of operations.

Product Liability

With respect to product liability claims involving our products, we believe that any judgment against us for actual damages will be adequately covered by our recorded accruals and, where applicable, excess insurance coverage. Although punitive damages are claimed in some of these lawsuits, and such claims are inherently unpredictable, our accruals incorporate our historic experience with these types of claims. We had recorded liabilities of $934 million, $921 million and $1.1 billion at March 31, 2009, December 31, 2008 and March 31, 2008, respectively, for the expected cost of all known product liability claims plus an estimate of the expected cost for all product liability claims that have already been incurred and are expected to be filed in the future for which we are self-insured, including related legal fees expected to be incurred. These amounts were recorded within Accrued expenses and excluded asbestos claims, which are discussed separately.

Asbestos Claims

Like most automobile manufacturers, we have been subject to asbestos-related claims in recent years. We have seen these claims primarily arise from three circumstances:

 

   

A majority of these claims seek damages for illnesses alleged to have resulted from asbestos used in brake components;

 

   

Limited numbers of claims have arisen from asbestos contained in the insulation and brakes used in the manufacturing of locomotives; and

 

   

Claims brought by contractors who allege exposure to asbestos-containing products while working on premises we owned.

While we have resolved many of the asbestos-related cases over the years and continue to do so for strategic litigation reasons such as avoiding defense costs and possible exposure to excessive verdicts, we believe that only a small proportion of the claimants has or

 

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will develop any asbestos-related physical impairment. Only a small percentage of the claims pending against us allege causation of a disease associated with asbestos exposure. The amount expended on asbestos-related matters in any period depends on the number of claims filed, the amount of pretrial proceedings and the number of trials and settlements during the period.

We record the estimated liability associated with asbestos personal injury claims where the expected loss is both probable and can reasonably be estimated. We retain Hamilton Rabinovitz & Associates, Inc., a firm specializing in estimating asbestos claims, to assist us in determining our potential liability for pending and unasserted future asbestos personal injury claims. The analyses rely on and include the following information and factors:

 

   

A third party forecast of the projected incidence of malignant asbestos-related disease likely to occur in the general population of individuals occupationally exposed to asbestos;

 

   

Our Asbestos Claims Experience, based on data concerning claims filed against us and resolved, amounts paid, and the nature of the asbestos-related disease or condition asserted during approximately the last four years;

 

   

The estimated rate of asbestos-related claims likely to be asserted against us in the future based on our Asbestos Claims Experience and the projected incidence of asbestos-related disease in the general population of individuals occupationally exposed to asbestos;

 

   

The estimated rate of dismissal of claims by disease type based on our Asbestos Claims Experience; and

 

   

The estimated indemnity value of the projected claims based on our Asbestos Claims Experience, adjusted for inflation.

We review a number of factors, including the analyses provided by Hamilton, Rabinovitz & Associates, Inc., in order to determine a reasonable estimate of our probable liability for pending and future asbestos-related claims projected to be asserted over the next 10 years, including legal defense costs. We monitor our actual claims experience for consistency with this estimate and make periodic adjustments as appropriate.

We believe that our analyses are based on the most relevant information available combined with reasonable assumptions, and that we may prudently rely on their conclusions to determine the estimated liability for asbestos-related claims. We note, however, that the analyses are inherently subject to significant uncertainties. The data sources and assumptions used in connection with the analyses may not prove to be reliable predictors with respect to claims asserted against us. Our experience in the recent past includes substantial variation in relevant factors, and a change in any of these assumptions — which include the source of the claiming population, the filing rate and the value of claims — could significantly increase or decrease the estimate. In addition, other external factors such as legislation affecting the format or timing of litigation, the actions of other entities sued in asbestos personal injury actions, the distribution of assets from various trusts established to pay asbestos claims and the outcome of cases litigated to a final verdict could affect the estimate.

Our liability recorded for asbestos-related matters was $627 million, $648 million and $628 million at March 31, 2009, December 31, 2008 and March 31, 2008, respectively.

Contingent Matters-Litigation

Various legal actions, governmental investigations, claims and proceedings are pending against us, including a number of shareholder class actions, bondholder class actions and class actions under the Employee Retirement Income Security Act of 1974, as amended, and other matters arising out of alleged product defects, including asbestos-related claims; employment-related matters; governmental regulations relating to safety, emissions, and fuel economy; product warranties; financial services; dealer, supplier and other contractual relationships and environmental matters.

 

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With regard to the litigation matters discussed in the previous paragraph, we have established reserves for matters in which we believe that losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or other treble damage claims, or demands for recall campaigns, incurred but not reported asbestos-related claims, environmental remediation programs, or sanctions, that if granted, could require us to pay damages or make other expenditures in amounts that could not be reasonably estimated at March 31, 2009. We believe that we have appropriately accrued for such matters under SFAS No. 5, “Accounting for Contingencies,” based on information currently available to us. At March 31, 2009, December 31, 2008 and March 31, 2008, we had reserves for litigation losses of $307 million, $277 million and $288 million, respectively, recorded in Accrued expenses. These accrued reserves (which do not include reserves for asbestos-related or product liability claims, which are disclosed previously in “Asbestos Claims” and “Product Liability” respectively) represent our best estimate of amounts we believe we are liable for within the range of expected losses. Litigation is inherently unpredictable, however, and unfavorable resolutions could occur. Accordingly, it is possible that an adverse outcome from such proceedings could exceed the amounts accrued in an amount that could be material to our financial condition and results of operations in any particular reporting period.

Delphi Corporation

Benefit Guarantee

In 1999, we spun-off Delphi Automotive Systems Corporation, which became Delphi. Delphi is our largest supplier of automotive systems, components and parts, and we are Delphi’s largest customer. From 2005 to 2008, our annual purchases from Delphi have ranged from approximately $6.5 billion to approximately $10.2 billion. At the time of the spin-off, employees of Delphi Automotive Systems Corporation became employees of Delphi. As part of the separation agreements, Delphi assumed the pension and other postretirement benefit obligations for these transferred U.S. hourly employees who retired after October 1, 2000 and we retained pension and other postretirement obligations for U.S. hourly employees who retired on or before October 1, 2000. Additionally at the time of the spin-off, we entered into separate agreements with the UAW, the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers of America – Communication Workers of America (IUE-CWA) and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers Union (USW) providing contingent benefit guarantees whereby we would make payments for certain pension benefits and OPEB to certain former U.S. hourly employees that became employees of Delphi (individually and collectively, the Benefit Guarantee Agreements). Each Benefit Guarantee Agreement contains separate benefit guarantees relating to pension and OPEB obligations, with different triggering events. The UAW, IUE-CWA and USW required through the Benefit Guarantee Agreements that in the event that Delphi or its successor companies ceases doing business or becomes subject to financial distress we could be liable if Delphi fails to provide the corresponding benefits at the required level. The Benefit Guarantee Agreements do not obligate us to guarantee any benefits for Delphi retirees in excess of the corresponding benefits we provide at the time to our own hourly retirees. Accordingly, any reduction in the benefits we provide our hourly retirees reduces our obligation under the corresponding benefit guarantee. In turn, Delphi entered into the Indemnification Agreement with us that required Delphi to indemnify us if we are required to perform under the UAW Benefit Guarantee Agreement. In addition, with respect to pension benefits, our guarantee arises only to the extent that the pension benefits provided by Delphi and the Pension Benefit Guaranty Corporation (PBGC) fall short of the guaranteed amount.

We received notice from Delphi, dated October 8, 2005, that it was more likely than not that we would become obligated to provide benefits pursuant to the Benefit Guarantee Agreements, in connection with its commencement on that date of Chapter 11 proceedings under the U.S. Bankruptcy Code. The notice stated that Delphi was unable to estimate the timing and scope of any benefits we might be required to provide under the Benefit Guarantee Agreements but did not trigger the Benefit Guarantee Agreements; however, in 2005, we believed it was probable that we had incurred a liability under the Benefit Guarantee Agreements.

In June 2007 we entered into a memorandum of understanding with Delphi and the UAW (Delphi UAW MOU) that included terms relating to the consensual triggering of the UAW Benefit Guarantee Agreement as well as additional terms relating to Delphi’s restructuring. Under the Delphi UAW MOU we also agreed to pay for certain healthcare costs of Delphi retirees and their beneficiaries in order to provide a level of benefits consistent with those provided to our retirees and their beneficiaries from the Mitigation Plan VEBA, which was formed pursuant to the Delphi UAW MOU. We also committed to pay $450 million to settle a

 

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UAW claim asserted against Delphi, which the UAW has directed us to pay directly to either the Mitigation Plan or New VEBA, depending upon the timing of the payment. This amount is to be paid upon substantial consummation of a Delphi Plan of Reorganization (POR) consistent with the Delphi UAW MOU and which incorporates, approves, and is consistent with the comprehensive settlement agreement between Delphi and us.

In August 2007, we also entered into memorandums of understanding with Delphi and the IUE-CWA (Delphi IUE-CWA MOU), and with Delphi and the USW (USW MOU). The terms of the Delphi IUE-CWA MOU and the USW MOU are similar to the Delphi UAW MOU with regard to the consensual triggering of the Benefit Guarantee Agreements.

Delphi-GM Settlement Agreements

In September 2007, as amended in October and December 2007, we entered into the Delphi-GM Settlement Agreements consisting of the Global Settlement Agreement, as amended (GSA) and the Master Restructuring Agreement, as amended (MRA). The GSA was intended to resolve outstanding issues between Delphi and us that have arisen or may arise before Delphi’s emergence from Chapter 11. The MRA was intended to govern certain aspects of our ongoing commercial relationship with Delphi. The memoranda of understanding discussed in the preceding paragraphs were incorporated into these agreements.

In September 2008 we further amended the terms of the GSA (Amended GSA) and MRA (Amended MRA) (collectively, Amended Delphi-GM Settlement Agreements). As a part of the negotiations with Delphi regarding the Amended Delphi-GM Settlement Agreements, we also entered into Implementation Agreements with the UAW, IUE-CWA and the USW. These Implementation Agreements addressed the transfer of pension assets and liabilities under IRS Code Section 414(1), and the triggering on the basis set forth in the Implementation Agreements of the “Term Sheet — Delphi Pension Freeze and Cessation of OPEB, and GM Consensual Triggering of Benefit Guarantee” negotiated with the respective unions in 2007, and the release by the unions, their members and their retirees of Delphi and us from claims related to such matters. In September 2008, the Bankruptcy Court entered an order approving the Amended Delphi-GM Settlement Agreements and the Implementation Agreements, which then became effective in September 2008.

In addition, the more significant items contained in the Amended Delphi-GM Settlement Agreements included our commitment to:

 

   

Reimburse Delphi for its costs to provide OPEB to certain of Delphi’s hourly retirees from December 31, 2006 through the date that Delphi ceases to provide such benefits and will assume responsibility for OPEB going forward;

 

   

Reimburse Delphi for the normal cost of credited service in Delphi’s pension plan between January 1, 2007 and the date its pension plans are frozen;

 

   

First Hourly Pension Transfer — Transfer, under IRS Code Section 414(l), net liabilities of $2.1 billion from the Delphi hourly rate employee pension plan (Delphi HRP) to our U.S. hourly pension plan on September 29, 2008;

 

   

Second Hourly Pension Transfer — Transfer the remaining Delphi HRP net liabilities, which are estimated to be $3.2 billion to $3.5 billion at March 31, 2009, upon Delphi’s substantial consummation of its POR that provides for the consideration to be received by us (as described below) and is consistent with other terms of the Amended Delphi-GM Settlement Agreements. Actual amounts of the Second Hourly Pension Transfer will depend on, among other factors, the valuation of the pension liability at the transfer date, the proportion of the obligation assumed by the PBGC and performance of pension plan assets;

 

   

Reimburse Delphi for all retirement incentives and half of the buyout payments made pursuant to the various attrition program provisions and to reimburse certain U.S. hourly buydown payments made to certain hourly employees of Delphi;

 

   

Award certain future product programs to Delphi, provide Delphi with ongoing preferential sourcing for other product programs, eliminate certain previously agreed upon price reductions, and restrict our ability to re-source certain production to alternative suppliers;

 

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Labor Cost Subsidy — Reimburse certain U.S. hourly labor costs incurred to produce systems, components and parts for us from October 1, 2006 through September 14, 2015 at certain U.S. facilities owned or to be divested by Delphi;

 

   

Production Cash Burn Support — Reimburse Delphi’s cash flow deficiency attributable to production at certain U.S. facilities that continue to produce systems, components and parts for us until the facilities are either closed or sold by Delphi;

 

   

Facilitation Support — Pay Delphi $110 million in both 2009 and 2010 in quarterly installments in connection with certain U.S. facilities owned by Delphi;

 

   

Temporarily accelerate payment terms for Delphi’s North American sales to us upon substantial consummation of its POR, until 2012;

 

   

Reimburse Delphi, beginning January 1, 2009, for actual cash payments related to workers compensation, disability, supplemental employment benefits and severance obligations for all current and former UAW-represented hourly active and inactive employees; and

 

   

Guarantee a minimum recovery of the net working capital that Delphi has invested in certain businesses held for sale.

Delphi agreed to provide us or our designee with an option to purchase all or any of certain Delphi businesses for one dollar if such businesses have not been sold by certain specified deadlines. If such a business is not sold either to a third party or to us or any affiliate pursuant to the option by the applicable deadline, we (or at our option, an affiliate) will be deemed to have exercised the purchase option, and the unsold business, including materially all of its assets and liabilities, will automatically transfer to the GM buyer. Similarly, under the Delphi UAW MOU if such a transfer has not occurred by the applicable deadline, responsibility for the affected UAW hourly employees of such an unsold business would automatically transfer to us or our designated affiliate.

The Amended GSA also resolves all claims in existence at the effective date of the Amended Delphi-GM Settlement Agreements (with certain limited exceptions) that either Delphi or we have or may have against the other, including Delphi’s motion in March 2006 under the U.S. Bankruptcy Code to reject certain supply contracts with us. The Amended GSA and related agreements with Delphi’s unions release us and our related parties, as defined, from any claims of Delphi and its related parties, as defined, as well as any employee benefit related claims of Delphi’s unions and hourly employees. Also pursuant to the Amended GSA, we have released Delphi and its related parties, as defined, from claims by us or our related parties, as defined.

Additionally, the Amended GSA provides that we will receive:

 

   

An administrative claim regarding the First Hourly Pension Transfer of $1.6 billion, of which we will share equally with the general unsecured creditors up to only the first $600 million in recoveries in the event Delphi does not emerge from bankruptcy;

 

   

An administrative claim for $2.1 billion for the total Delphi HRP transfer (inclusive of the administrative claim for the First Hourly Pension Transfer) to be paid in preferred stock upon substantial consummation of Delphi’s POR in which Delphi emerges with: (1) its principal core businesses; (2) exit financing that does not exceed $3.0 billion (plus a revolving credit facility); and (3) equity securities that are not senior to or pari passu with the preferred stock issued to us; and

 

   

A general unsecured claim in the amount of $2.5 billion that is subordinated until general unsecured creditors receive recoveries equal to 20% of their general unsecured claims after which we will receive 20% of our general unsecured claim in preferred stock, with any further recovery shared ratably between us and general unsecured creditors.

The ultimate value of any consideration that we may receive is contingent on the fair value of Delphi’s assets in the event Delphi fails to emerge from bankruptcy or upon the fair market value of Delphi’s securities if Delphi emerges from bankruptcy.

 

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Delphi POR

The Bankruptcy Court entered an order in January 2008 confirming Delphi’s POR. In April 2008, Delphi announced that although it had met the conditions required to substantially consummate its POR, including obtaining $6.1 billion in exit financing, Delphi’s plan investors refused to participate in the closing of the transaction contemplated by the POR, which was commenced but not completed because of the plan investors’ position. We continued to work with Delphi and its stakeholders on Delphi’s efforts to emerge from bankruptcy, including the implementation of the Amended Delphi-GM Settlement Agreements. In October 2008 Delphi filed a modified POR, which contemplated Delphi obtaining $3.8 billion in exit financing to consummate its modified POR.

Delphi Advance Agreement

In May 2008, we agreed to advance up to $650 million to Delphi in 2008, which was within the amounts we would have owed under the Delphi-GM Settlement Agreements had Delphi emerged from bankruptcy in April 2008. In August 2008 we entered into a new agreement to advance up to an additional $300 million. This increased the amount we agreed to advance to $950 million in 2008, which was within the amounts we would owe under the Delphi-GM Settlement Agreements if Delphi was to emerge from bankruptcy in December 2008. Upon the effectiveness of the Amended Delphi-GM Settlement Agreements, the original $650 million advance agreement matured, leaving a $300 million advance agreement. Further, in October 2008, subject to Delphi obtaining an extension or other accommodation of its debtor in possession financing through June 30, 2009, we agreed to extend the $300 million advance agreement through June 30, 2009.

In February 2009, we agreed to the increase in the advance agreement commitment from $300 million to $350 million, to become effective on March 24, 2009, subject to approval by the President’s Designee under the terms of our UST Loan Agreement. In March 2009, we agreed to increase the advance agreement commitment from $350 million to $450 million, to become effective on March 24, 2009, subject to: (1) our Board approval; (2) the President’s Designee’s approval under the terms of the UST Loan Agreement; (3) Bankruptcy Court approval of increase in advance agreement; and (4) the achievement of certain milestones in the Steering Option Exercise Agreement (described below), including, but not limited to, Bankruptcy Court approval of the Steering Option Exercise Agreement and execution of definitive agreements for the sale of the Global Steering business to us. The President’s Designee did not approve either increase in the advance agreement commitment. We expect Delphi to fully draw the $300 million under this agreement by the end of May 2009. There are no assurances that Delphi will be able to repay the amounts advanced and at March 31, 2009 we have reserved $170 million against the advanced amounts.

Payment Terms Acceleration Agreement

In October 2008, subject to Delphi obtaining an extension or other accommodation of its debtor in possession financing through June 30, 2009, we also agreed to temporarily accelerate our North American payables to Delphi in the three months ending June 30, 2009, which was expected to result in additional liquidity to Delphi of $100 million in each of April, May and June of 2009. In December 2008, Delphi reached an accommodation with its lender through June 30, 2009 and we agreed to change the commencement date of the temporary acceleration of our North American payables to Delphi from April 2009 to March 2009. The temporary acceleration of payment terms, which was to occur upon substantial consummation of Delphi’s POR under the Amended Delphi-GM Settlement Agreements, was also subject to Delphi’s actual liquidity requirements. In January 2009, we agreed to immediately accelerate $50 million in advances towards the temporary acceleration of our North American payables. Additionally, we agreed to accelerate $150 million and $100 million of our North American payables to Delphi in March and April, respectively, bringing the total amount accelerated to date to the total agreed upon $300 million.

Steering Option Exercise Agreement

In March 2009, we reached preliminary agreement with Delphi on terms for us to acquire Delphi’s Global Steering Business as provided for in the Amended Delphi-GM Settlement Agreements. The Option Exercise Agreement was subject to the approvals of our Board, the President’s Designee and the Bankruptcy Court. The President’s Designee did not approve the terms of the Steering Option Exercise Agreement.

 

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Delphi Charges

The following table summarizes charges we have recorded with respect to our agreements with Delphi:

 

     Three Months Ended
March 31,
   Cumulative
Charges to Date
         2009            2008       
     (Dollars in millions)

Other expenses

   $    $ 731    $ 12,344

Cost of sales

     274      45      882
                    

Total Delphi charges

   $ 274    $ 776    $ 13,226
                    

These charges reflect our best estimate of our obligations associated with the Implementation Agreements and the Amended Delphi-GM Settlement Agreements, updated to reflect the current challenges in the automotive industry. Further, these charges assume that our obligation with respect to pension benefits arises only to the extent that the pension benefits provided by Delphi and the PBGC fall short of the guaranteed amount. As such, our estimated obligation could increase by up to $2.3 billion at March 31, 2009 if we become obligated to assume Delphi pension related obligations beyond those currently required by the terms of the Implementation Agreements and the Amended Delphi-GM Settlement Agreements, such as assuming amounts that would otherwise be covered by the PBGC.

Since 2005, we have recorded total charges of $12.5 billion in connection with the Benefit Guarantee Agreements and Amended Delphi-GM Settlement Agreements which, at March 31, 2009, reflect an estimate of no recovery for our bankruptcy claims. Of this amount, $135 million was recorded in Cost of sales and the remaining amounts were recorded in Other expenses. In addition, our ongoing commitments under the Amended Delphi-GM Settlement Agreements for the Labor Cost Subsidy, Production Cash Burn Support and, in 2009, Facilitation Support are included in the amounts recorded in Cost of sales and are expected to result in additional expense in the range of $400 million to $600 million in 2009 and 2010, reducing to a range of $150 million to $250 million per year thereafter through 2015. These expenses will be treated as a period cost and expensed as incurred.

Risks If Delphi Cannot Emerge from Bankruptcy

Delphi’s debtor-in-possession financing (DIP Financing) was scheduled to mature on December 31, 2008 and Delphi has been operating under a forbearance agreement with its DIP Financing lenders since December 12, 2008 (the Accommodation Agreement) which contains various milestone requirements that, if not satisfied, trigger termination of the forbearance. Delphi was unable to satisfy some of these milestones, resulting in further amendments to the Accommodation Agreement in each of January, February, March and April of 2009. On May 7, 2009, the U.S. Bankruptcy Court approved another amendment to the Accommodation Agreement, subject to certain conditions to effectiveness, which provides that the Delphi DIP Accommodation Agreement is scheduled to terminate on June 2, 2009 unless a term sheet between Delphi, us and the UST is agreed upon on or before May 21, 2009 and deemed satisfactory to the Delphi DIP lenders on or before June 1, 2009.

Due to the uncertainties surrounding Delphi’s ability to emerge from bankruptcy it is reasonably possible that additional losses, which may be material to our financial condition and results of operations, could arise in the future, but we currently are unable to estimate the amount or range of such losses, if any.

Note 11. Income Taxes

For interim income tax reporting, we estimate our annual effective tax rate and apply it to year-to-date ordinary income/loss pursuant to FIN No. 18, “Accounting for Income Taxes in Interim Periods.” The tax effect of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim

 

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period in which they occur. We exclude tax jurisdictions where we have a projected or year to date loss for which a tax benefit cannot be realized. The interim income tax provisions for these jurisdictions are allocated among continuing operations and other sources of income using intraperiod tax allocation.

Valuation allowances have been established against deferred tax assets if, based on the available positive and negative evidence, it is more likely than not such assets will not be realized. Our ability to realize our deferred tax assets depends on our ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. We have considered the following possible sources of taxable income when assessing the realization of our deferred tax assets:

 

   

Future reversals of existing taxable temporary differences;

 

   

Future taxable income exclusive of reversing temporary differences and carryforwards;

 

   

Taxable income in prior carryback years; and

 

   

Tax-planning strategies.

As of December 31, 2008, we had established valuation allowances against net deferred tax assets in most of our major operating jurisdictions, including but not limited to Australia, Brazil, Canada, Germany, Poland, South Korea, Spain, the United Kingdom and the United States. The valuation allowances in Spain and the United Kingdom were established during the three months ended March 31, 2008, when we determined that is was more likely than not that we would not realize our net deferred tax assets in these jurisdictions. If, in the future, we overcome negative evidence in tax jurisdictions where we have established valuation allowances, our conclusion regarding the need for valuation allowances in these tax jurisdictions could change, resulting in the reversal of some or all of such valuation allowances. If we generate taxable income in tax jurisdictions prior to overcoming negative evidence, we would reverse a portion of the valuation allowance related to the corresponding realized tax benefit for that period, without changing our conclusions on the need for a valuation allowance against the remaining net deferred tax assets.

We file income tax returns in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. We have open tax years from 1999 to 2008 with various significant tax jurisdictions. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. We have recorded a tax benefit only for those positions that meet the more likely than not standard. At March 31, 2009, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits over the next 12 months.

Note 12. Fair Value Measurements

The three-level valuation hierarchy for fair value measurements is based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs create the following fair value hierarchy:

 

   

Level 1 — Quoted prices for identical instruments in active markets;

 

   

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable: and

 

   

Level 3 — Instruments whose significant inputs are unobservable.

Following is a description of the valuation methodologies we used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

 

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Securities

We classify our securities within Level 1 of the valuation hierarchy where quoted prices for identical securities are available in an active market. Level 1 securities include exchange-traded equities. We generally classify our securities within Level 2 of the valuation hierarchy where quoted market prices are not available. If quoted market prices are not available, we determine the fair values of our securities using pricing models, quoted prices of securities with similar characteristics or discounted cash flow models. These models are primarily industry-standard models that consider various assumptions, including time value and yield curve as well as other relevant economic measures. Examples of such securities include U.S. government and agency securities, certificates of deposit, commercial paper, and corporate debt securities. We classify our securities within Level 3 of the valuation hierarchy in certain cases where there is limited activity or less observable inputs to the valuation. Inputs to the Level 3 security fair value measurements consider various assumptions, including time value, yield curve, prepayment speeds, default rates, loss severity, current market and contractual prices for underlying financial instruments as well as other relevant economic measures. Securities classified within Level 3 include certain mortgage-backed securities and other securities.

Derivatives

The majority of our derivatives are valued using internal models that use as their basis readily observable market inputs, such as time value, forward interest rates, volatility factors, and current and forward market prices for commodities and foreign currency exchange rates. We generally classify these instruments within Level 2 of the valuation hierarchy. Such derivatives include interest rate swaps, cross currency swaps, foreign currency derivatives and commodity derivatives. We classify derivative contracts that are valued based upon models with significant unobservable market inputs as Level 3 of the valuation hierarchy. Examples include our warrant with the UST, certain long-dated commodity derivatives and interest rate swaps with notional amounts that fluctuate over time. Models for these fair value measurements include unobservable inputs based on estimated forward rates and prepayment speeds. SFAS No. 157 requires that the valuation of derivative liabilities take into account a company’s own nonperformance risk. Our derivative liability valuation methodology considers our own nonperformance risk as observed through the credit default swap market and bond market and is based on prices for recent trades.

 

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Fair Value Measurements on a Recurring Basis

The following tables summarize the financial instruments measured at fair value on a recurring basis:

 

     Fair Value Measurements on a
Recurring Basis at March 31, 2009
     Level 1    Level 2    Level 3    Total
     (Dollars in millions)

Assets

           

Securities

           

Equity

   $ 14    $ 12    $    $ 26

United States government and agency

          3           3

Mortgage-backed

               44      44

Certificates of deposit

          1,647           1,647

Commercial paper

          2,719           2,719

Corporate debt

          38           38

Other

          4      14      18

Derivatives

           

Interest rate swaps

          377      2      379

Foreign currency derivatives

          693           693

Commodity derivatives

          23           23
                           

Total Assets

   $ 14    $ 5,516    $ 60    $ 5,590
                           

Liabilities

           

Derivatives

           

Cross currency swaps

   $    $ 380    $    $ 380

Interest rate swaps

          1      2      3

Foreign currency derivatives

          1,424           1,424

Commodity derivatives

          392      13      405

UST warrant

               66      66
                           

Total Liabilities

   $    $ 2,197    $ 81    $ 2,278
                           

 

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     Fair Value Measurements on a
Recurring Basis at December 31, 2008
     Level 1    Level 2    Level 3    Total
     (Dollars in millions)

Assets

           

Securities

           

Equity

   $ 14    $ 15    $    $ 29

United States government and agency

          603           603

Mortgage-backed

               49      49

Certificates of deposit

          1,813           1,813

Commercial paper

          1,704           1,704

Corporate debt

          36           36

Other

               17      17

Derivatives

           

Interest rate swaps

          368      3      371

Foreign currency derivatives

          1,228           1,228

Commodity derivatives

          35      1      36
                           

Total Assets

   $ 14    $ 5,802    $ 70    $ 5,886
                           

Liabilities

           

Derivatives

           

Cross currency swaps

   $    $ 377    $    $ 377

Interest rate swaps

          3      3      6

Foreign currency derivatives

          258      2,144      2,402

Commodity derivatives

          571      18      589

UST warrant

               164      164
                           

Total Liabilities

   $    $ 1,209    $ 2,329    $ 3,538
                           

Transfers In and/or Out of Level 3

In the three months ended December 31, 2008, we concluded, due to deterioration in the credit markets and in our financial condition, that adjustments to the fair value of our derivatives due to nonperformance risk required significant judgment for derivative contracts to which certain of our foreign consolidated subsidiaries were party. Nonperformance risk associated with these subsidiaries was estimated based on the credit rating of sovereign comparable companies with similar credit profiles and observable credit ratings together with internal bank credit ratings obtained from the subsidiary’s counterparty banks. At December 31, 2008, derivatives valued using these measurements were classified within Level 3 of the valuation hierarchy. At March 31, 2009, due to further deterioration in our subsidiaries’ credit, the derivative contracts to which these foreign subsidiaries are party have been transferred from Level 3 into Level 2 as the credit risk of the foreign subsidiaries is now considered to approximate our Corporate nonperformance risk which is observable through the credit default swap market and bond market based on prices for recent trades.

 

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The tables below summarize the activity in our balance sheet accounts for financial instruments classified within Level 3 of the valuation hierarchy. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components which are validated to external sources.

 

     Mortgage-
backed

Securities(a)
    Level 3 Financial Assets and Liabilities
Three Months Ended March 31, 2009
    Total Net
Liabilities
 
     Commodity
Derivatives,
Net(b)
    Foreign
Currency
Derivatives(c)
    UST
Warrant(a)
    Other
Securities(a)
   
     (Dollars in millions)  

Balance at December 31

   $ 49     $ (17 )   $ (2,144 )   $ (164 )   $ 17     $ (2,259 )

Total realized/unrealized gains (losses)

            

Included in earnings

     (1 )     2             98       (2 )     97  

Included in Other comprehensive loss

                                    

Purchases, issuances, and settlements

     (4 )     2                   (1 )     (3 )

Transfer in and/or out of Level 3

                 2,144                   2,144  
                                                

Balance at March 31

   $ 44     $ (13 )   $     $ (66 )   $ 14     $ (21 )
                                                

Amount of total gains and (losses) for the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date

   $ (1 )   $ 2     $     $ 98     $ (2 )   $ 97  
                                                
     Mortgage-
backed

Securities(a)
    Level 3 Financial Assets and Liabilities
Three Months Ended March 31, 2008
    Total Net
Assets
 
     Interest Rate
Swaps, net
    Commodity
Derivatives(b)
    Corporate Debt
Securities(a)
    Other
Securities(a)
   
     (Dollars in millions)  

Balance at December 31,

   $ 283     $ 2     $ 257     $ 28     $ 258     $ 828  

Total realized/unrealized gains (losses)

            

Included in earnings

                 119             (3 )     116  

Included in Other comprehensive loss

     (4 )                 23       (20 )     (1 )

Purchases, issuances, and settlements

     4       (2 )     (22 )           (14 )     (34 )

Transfer in and/or out of Level 3

                                    
                                                

Balance at March 31,

   $ 283     $     $ 354     $ 51     $ 221     $ 909  
                                                

Amount of total gains and (losses) for the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date

   $     $     $ 119     $     $ (3 )   $ 116  
                                                

 

(a) Realized gains (losses) and other than temporary impairments on marketable securities or the UST warrant are recorded in Interest income and other non-operating income, net.

 

(b) Realized and unrealized gains (losses) on commodity derivatives are recorded in Cost of sales. Changes in fair value are attributable to changes in base metal and precious metal prices.

 

(c) Realized and unrealized gains (losses) on foreign currency derivatives are recorded in the line item associated with the economically hedged item.

 

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Unrealized securities holding gains and losses are excluded from earnings and reported as Other comprehensive income or loss until realized. Gains and losses are not realized until an instrument is settled or sold. On a monthly basis, we evaluate whether unrealized losses related to investments in debt and equity securities are other than temporary. Factors considered in determining whether a loss is other than temporary include the length of time and extent to which the fair value has been below cost, the financial condition and near-term prospects of the issuer and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. If losses are determined to be other than temporary, the loss is recognized and the investment carrying amount is adjusted to a revised fair value. Other than temporary impairment losses of $8 million and $17 million were recorded in the three months ended March 31, 2009 and March 31, 2008, respectively.

Fair Value Measurements on a Nonrecurring Basis

The following tables summarize assets measured at fair value on a nonrecurring basis subsequent to initial recognition:

 

     March 31,
2009
   Fair Value Measurements Using    Three Months
Ended

March 31, 2009
Total Losses
 
        Quoted Prices in
Active Markets
for Identical
Assets

(Level 1)
   Significant
Other
Observable

Inputs
(Level 2)
   Significant
Unobservable
Inputs

(Level 3)
  
     (Dollars in millions)  
Assets               

Investment in CAMI

   $    $    $    $    $ (28 )

Long-lived assets

     85                85      (290 )

Equipment on operating leases

     1,519                1,519      (16 )
                                    

Total

   $ 1,604    $    $    $ 1,604    $ (334 )
                                    

 

     March 31,
2008
   Fair Value Measurements Using    Three Months
Ended
March 31, 2008
Total Losses
 
        Quoted Prices in
Active Markets

for Identical
Assets
(Level 1)
   Significant
Other
Observable

Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
  
     (Dollars in millions)  
Assets               

Investment in GMAC Common Membership Interests

   $ 5,391    $    $    $ 5,391    $ (1,310 )

Investment in GMAC Preferred Membership Interests

     902                902      (142 )
                                    

Total

   $ 6,293    $    $    $ 6,293    $ (1,452 )
                                    

We review the carrying value of our assets measured at fair value on a nonrecurring basis when events and circumstances warrant. This review requires the comparison of the fair value of our assets to their respective carrying values. The fair value of our assets is determined based on valuation techniques using the best information that is available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded whenever a decline in fair value below the carrying value is determined to be other than temporary.

Investment in CAMI

In the three months ended December 31, 2008, we recognized an impairment charge of $25 million for our equity method investee, CAMI. We evaluated CAMI for impairment due to the decline in industry sales in North America, which negatively affected CAMI’s net income and cash flows. Prior to March 1, 2009, we recognized an additional impairment charge of $28 million. Both impairment charges were based on discounted projected cash flows, and were included in Equity income, net of tax. Effective March 1, 2009, we

 

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determined that due to changes in contractual arrangements, CAMI became a VIE pursuant to FIN No. 46(R), “Consolidation of Variable Interest Entities — an interpretation of ARB No. 51,” and we are the primary beneficiary, and therefore CAMI was consolidated. As the acquisition date occurred near the end of the reporting period, consolidation was based on provisional estimates of fair value for all acquired assets and liabilities. As fair values are determined and final purchase accounting is completed, the provisional estimates will be retrospectively adjusted to reflect the new information obtained about facts and circumstances that existed at March 1, 2009. Based on our provisional estimates, the equity interests held by us and by the noncontrolling interest had a fair value of approximately $12 million. Total assets were approximately $472 million comprised primarily of property, plant, and equipment, related party accounts receivable and inventory. Total liabilities were approximately $460 million comprised primarily of long-term debt, accrued liabilities and pension and other post-employment benefits. Supplemental pro forma information is omitted as the effect is immaterial.

Long-Lived Asset Impairments

Product-specific assets may become impaired as a result of declines in profitability due to changes in volume, pricing or costs. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with current market risk expectations about those future amounts. Product-specific tooling assets with a carrying value of $375 million were adjusted to their fair value of $85 million, resulting in impairment charges of $290 million in the three months ended March 31, 2009.

Equipment on Operating Leases

Vehicles under operating leases may become impaired based on negative economic trends, which can affect the residual values and expected future cash flows of these assets. Negative industry conditions in North America continue to increase the risks and costs associated with vehicle lease financing. The impairment charges related to these assets in the three months ended March 31, 2009 were the result of reduced expectations of the cash flows from these lease arrangements. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with current market risk expectations about those future amounts. Vehicles under operating lease were adjusted to their fair value of $1.5 billion by recognizing and impairment charge of $16 million.

Investments in GMAC Common and Preferred Membership Interests

In 2008 the global economy steadily deteriorated. The United States entered a recessionary period beginning in December 2007 as a result of instability in the credit and mortgage markets, severe declines in residential and homebuilding markets and significant volatility in the prices of oil and other commodities. In 2008, these factors continued to deteriorate and spread beyond the United States initially to Western Europe and then to the emerging markets in South America and Asia. These economic factors initially affected consumer demand for less fuel efficient vehicles, particularly fullsize pick-up trucks and sport utility vehicles, which had been our most profitable products. The continued instability of the credit markets resulted in an extreme lack of liquidity resulting in prominent North American financial institutions declaring bankruptcy, being seized by the Federal Deposit Insurance Corporation or being sold at distressed valuations, and culminated in the U.S. and foreign governments providing various forms of capital infusions to financial institutions. More recently consumer demand for vehicles has contracted due to a decline in the availability of financing and a significant contraction in consumer spending based on the continued recession in the United States, resulting in vehicle sales at their lowest levels in 16 years.

As a result of these events, as described in more detail in our 2008 Annual Report on Form 10-K, we evaluated our investments in GMAC Common and Preferred Membership Interests and determined that they were impaired and that such impairments were other than temporary in the three months ended March 31, 2008.

 

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The following tables summarize the activity with respect to our investment in GMAC Common and Preferred Membership Interests:

 

     GMAC Common
Membership Interests
    GMAC Preferred
Membership Interests
 
     (Dollars in millions)  

Balance at December 31, 2008

   $ 491     $ 43  

Our proportionate share of GMAC’s losses

     (500 )      

Investment in GMAC Common Membership Interests

     884        

Other, primarily Accumulated other comprehensive loss

     (121 )      
                

Balance at March 31, 2009

   $ 754     $ 43  
                
     GMAC Common
Membership Interests
    GMAC Preferred
Membership Interests
 
     (Dollars in millions)  

Balance at December 31, 2007

   $ 7,079     $ 1,044  

Our proportionate share of GMAC’s losses

     (302 )      

Impairment charges

     (1,310 )     (142 )

Other, primarily Accumulated other comprehensive loss

     (76 )      
                

Balance at March 31, 2008

   $ 5,391     $ 902  
                

Continued low or decreased demand for vehicles, continued or increased instability in the global credit and mortgage markets, the lack of available credit, or a lengthy recession in North America, Europe, South America or Asia could further negatively affect GMAC’s lines of business, and result in future impairments of our investment in GMAC Common and Preferred Membership Interests. Additionally, as GMAC provides financing to our dealers as well as retail purchasers of our vehicles, further deterioration in these economic factors could cause our vehicle sales to decline.

Note 13. Restructuring and Other Initiatives

We have executed various restructuring and other initiatives and plan to execute additional initiatives in the future in response to deterioration in the global economy in order to preserve adequate liquidity, to align manufacturing capacity and other structural costs with prevailing global automotive production, and to improve the utilization of remaining facilities as described in our Revised Viability Plan. Refer to Note 2. Costs to idle, consolidate or close facilities and provide postemployment benefits to employees idled on an other than temporary basis are accrued based on our best estimate of the wage, benefit and other costs to be incurred. Costs related to the idling of employees that are expected to be temporary are generally expensed as incurred. Estimates of restructuring and other initiative charges are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, we may record revisions to previous estimates by adjusting previously established reserves.

In February 2009, the UAW tentatively agreed to an addendum, subject to union ratification, to the 2007 UAW National Agreement that suspends certain compensation and employee benefits available to the UAW employees pursuant to the 2007 UAW National Agreement. The addendum includes a provision, not subject to ratification, that enables us to make mutually satisfactory changes to the JOBS Program allowing employees to be reclassified to layoff status eligible for supplemental unemployment benefits. As such, the JOBS Program was discontinued during the first quarter and affected employees became eligible for supplemental unemployment benefits which have a lower cost to us. The suspension is for the duration of the addendum which coincides with the term of the 2007 UAW National Agreement.

Refer to Note 14 for asset impairment charges related to our restructuring initiatives and Note 8 for pension and other postretirement benefit charges related to our hourly and salaried employee separation initiatives, including special attrition programs.

 

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2009 Activities

The following table summarizes our restructuring reserves and charges by region, including postemployment benefit reserves and charges in the three months ended March 31, 2009:

 

     GMNA     GME     GMLAAM     GMAP     Total  
     (Dollars in millions)  

Balance at December 31, 2008

   $ 2,456     $ 468     $ 17     $ 41     $ 2,982  

Additions

     411       10       26       6       453  

Interest accretion and other

     10       (3 )                 7  

Payments

     (398 )     (33 )     (21 )     (11 )     (463 )

Revisions to estimates

     (297 )           9             (288 )

Effect of foreign currency

     (28 )     (28 )           (2 )     (58 )
                                        

Balance at March 31, 2009

   $ 2,154     $ 414     $ 31     $ 34     $ 2,633  
                                        

GMNA recorded charges, interest accretion and other and revisions to estimates of $124 million for separation programs related to the following initiatives:

 

   

Postemployment benefit costs in the United States of $296 million related to 7,000 employees participating in the 2009 Special Attrition Program. At March 31, 2009, the postemployment benefit reserve reflects estimated future wages and benefits for 15,900 employees at idled or to be idled facilities in the United States and Canada and 8,400 employees subject to special attrition programs announced in 2009 and 2008.

 

   

Separation charges of $115 million for a U.S. salaried severance program, which allows terminated employees to receive ongoing wages and benefits for no longer than 12 months. At March 31, 2009, the U.S. salaried severance reserve reflects estimated future wages and benefits for employees as part of the plan to reduce U.S. salaried headcount by 3,400.

 

   

Interest accretion of $10 million and revisions to estimates to decrease the reserve of $297 million, primarily related to the suspension of the Job Opportunity Bank and reductions to the reserve for estimated future wages and benefits due to 7,000 employees participating in the 2009 Special Attrition Program.

GME recorded charges, interest accretion and other and revisions to estimates of $7 million for separation programs related to the following initiatives:

 

   

Separation charges of $10 million related to early retirement programs, primarily in Germany. Approximately 4,600 employees will leave under early retirement programs in Germany through 2013.

 

   

Additional liability adjustments in Germany of $7 million related to postemployment programs in which employees provide service and receive partial salary during the active phase of employment and continue to receive specified payments during the passive, or idle, period of the separation program. The total remaining cost for the early retirements will be recognized over the remaining required service period of the employees. Liability adjustments were included in interest accretion and other.

 

   

Interest accretion of $5 million primarily related to previously announced programs in Belgium.

 

   

Decrease in the reserve of $15 million due to the deconsolidation of Saab is included in interest accretion and other.

GMLAAM recorded charges and revisions to estimates of $35 million related to the following initiatives:

 

   

Separation charges in Brazil of $15 million related to voluntary separation programs affecting 200 salaried employees.

 

   

Separation charges of $11 million related to voluntary and involuntary separation programs in South America and South Africa affecting 900 salaried and hourly employees.

 

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Revisions to estimates to increase the reserve of $9 million related to additional estimated costs for previously announced separation programs at the GM do Brasil Sao Caetano and Sao Jose dos Campos plants.

GMAP recorded charges of $6 million related to the following initiatives:

 

   

Separation charges in Australia of $2 million related to a facility idling at GM Holden, which manufactures FAM II 4 cylinder engines. The program affects 600 employees, who will leave through December 2009, and has a total estimated cost of $67 million. The remaining cost of this program will be recognized over the remaining required service period of the employees.

 

   

Separation charges in Thailand of $4 million related to a voluntary separation program effecting 800 employees.

2008 Activities

The following table summarizes our restructuring reserves and charges by region, including postemployment benefit reserves and charges in the three months ended March 31, 2008:

 

     GMNA     GME     GMLAAM     GMAP    Total  
     (Dollars in millions)  

Balance at December 31, 2007

   $ 868     $ 580     $ 4     $   —    $ 1,452  

Additions

     50       118       3            171  

Interest accretion and other

     7       11                  18  

Payments

     (158 )     (159 )     (3 )          (320 )

Revisions to estimates

     (16 )                      (16 )

Effect of foreign currency

     (15 )     36                  21  
                                       

Balance at March 31, 2008

   $ 736     $ 586     $ 4     $    $ 1,326  
                                       

GMNA recorded charges, interest accretion and other and revisions to estimates of $41 million for separation programs related to the following initiatives:

 

   

Postemployment benefit costs in the United States of $48 million. The postemployment benefit reserve reflects estimated future wages and benefits for 8,000 employees at idled or to be idled facilities and 3,600 employees subject to special attrition programs.

 

   

Separation charges of $2 million for a U.S. salaried severance program, which allows terminated employees to receive ongoing wages and benefits for no longer than 12 months.

 

   

Interest accretion of $7 million and revisions to estimates to decrease the reserve of $16 million.

GME recorded charges, interest accretion and other and revisions to estimates of $129 million for separation programs related to the following initiatives:

 

   

Separation charges in Germany of $68 million and postemployment liability adjustments of $6 million. These charges and adjustments are primarily related to early retirement programs, along with additional minor separations.

 

   

Separation charges in Belgium of $45 million related to current and previously announced programs.

 

   

Separation charges in Sweden of $5 million related to initiatives announced in 2006.

 

   

Interest accretion of $5 million related to programs in Germany and Belgium.

GMLAAM recorded charges of $3 million primarily for separation programs in South Africa and Chile.

 

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Note 14. Impairments

We periodically review the carrying value of our long-lived assets to be held and used when events and circumstances warrant and in conjunction with the annual business planning cycle. If the carrying value of a long-lived asset or asset group is considered impaired, an impairment charge is recorded for the amount by which the carrying amount exceeds fair value. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Product-specific assets may become impaired as a result of declines in profitability due to changes in volume, pricing or costs. Refer to Note 13 for additional detail on restructuring and other initiatives.

Due to the current instability in the global economy and credit markets, it is reasonably possible that economic conditions could deteriorate further and negatively affect our anticipated cash flows to such an extent that we could be required to record impairment charges against our long-lived assets.

Our portfolio of equipment on operating leases is comprised of vehicle leases to retail customers with original lease terms of up to 48 months and vehicles leased to rental car companies, with lease terms which average 11 months or less.

We periodically review the carrying value of our portfolio of equipment on operating leases for impairment when events and circumstances warrant and in conjunction with our quarterly review of residual values and associated depreciation rates. As part of our quarterly review, residual values for our equipment on operating leases are determined based on current auction proceeds in the United States and Canada and forecasted auction proceeds outside of the United States and Canada when we have a reliable basis to make such a determination.

If the carrying value is considered impaired, an impairment charge is recorded for the amount by which the carrying value exceeds the fair value. Fair value is determined primarily using the anticipated cash flows, including estimated residual values, discounted at a rate commensurate with the risk involved. Impairment charges are recorded in Cost of sales.

The following table summarizes our impairment charges:

 

     Three Months Ended March 31,
         2009            2008    
     (Dollars in millions)

Long-lived and other asset impairments

   $ 376    $   —

Impairments related to Equipment on operating leases, net

     39      26
             

Total impairment charges

   $ 415    $ 26
             

GMNA recorded long-lived asset impairment charges of $278 million related to product-specific tooling assets, primarily related to the Pontiac G6, $42 million related to cancelled powertrain programs, $28 million related to impairments in our investment in CAMI (at March 1, 2009, we consolidated CAMI in accordance with FIN No. 46(R)) and $11 million related to equipment on operating leases comprised of vehicles leased to rental car companies in the three months ended March 31, 2009. Additionally, GMNA recorded contract cancellation charges of $128 million related to the cancellation of certain product programs.

GME recorded impairment charges of $12 million and $26 million related to equipment on operating leases comprised of vehicles leased to rental car companies in the three months ended March 31, 2009 and 2008, respectively.

GMLAAM recorded long-lived asset impairments of $3 million related to product-specific tooling assets in the three months ended March 31, 2009.

GMAP recorded long-lived asset impairments of $25 million, primarily related to the Pontiac G8 in the three months ended March 31, 2009.

We recorded impairment charges of $16 million related to equipment on operating leases comprised of vehicle leases to retail customers in the three months ended March 31, 2009.

 

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Note 15. Loss Per Share

Basic and diluted loss per share have been computed by dividing Net loss attributable to GM Common Stockholders by the weighted average number of shares outstanding during the period.

The following table summarizes the amounts used in the basic and diluted loss per share computations:

 

     Three Months Ended March 31,  
     2009     2008  
     (In millions, except per share amounts)  

Net loss attributable to GM Common Stockholders

   $ (5,975 )   $ (3,282 )

Weighted average number of shares outstanding

     611       566  

Basic and diluted loss per share attributable to GM Common Stockholders

   $ (9.78 )   $ (5.80 )

Due to net losses for all periods presented, the assumed exercise of stock options and warrants had an antidilutive effect and therefore was excluded from the computation of diluted loss per share. The number of such options and warrants not included in the computation of diluted loss per share was 209 million and 102 million in the three months ended March 31, 2009 and 2008, respectively.

No shares potentially issuable to satisfy the in-the-money amount of the convertible debentures have been included in diluted earnings per share for the three months ended March 31, 2009 and 2008 as our various series of convertible debentures were not in-the-money.

Note 16. Transactions with GMAC

We have entered into various operating and financing arrangements with GMAC as more fully described in our 2008 Form 10-K. The following describes the financial statement effects at March 31, 2009, December 31, 2008 and March 31, 2008 and for the three months ended March 31, 2009 and 2008 which are included in our condensed consolidated financial statements.

Marketing Incentives and Operating Lease Residuals

 

     March 31,
2009
   December 31,
2008
   March 31,
2008
      (Dollars in millions)

Residual Support Program

        

Liabilities recorded

   $ 673    $ 705    $ 148

Maximum obligations

   $ 1,375    $ 1,432    $ 1,273

Risk Sharing

        

Liabilities recorded

   $ 468    $ 1,233    $ 142

Maximum amount guaranteed

   $ 1,588    $ 1,724    $ 1,623

We paid $158 million and $915 million to GMAC related to our U.S. marketing incentive and operating lease residual programs in the three months ended March 31, 2009 and 2008, respectively.

Equipment on Operating Leases Transferred to Us by GMAC

In November 2006, GMAC transferred equipment on operating leases to us, along with related debt and other assets. GMAC retained an investment in a note, which had a balance of $35 million at March 31, 2009, December 31, 2008 and March 31, 2008, respectively, and is secured by the equipment on operating leases transferred.

Exclusivity Arrangement

We recognized exclusivity fee revenue of $25 million and $26 million in the three months ended March 31, 2009 and 2008, respectively.

 

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Royalty Arrangement

We recognized royalty income of $2 million and $4 million in the three months ended March 31, 2009 and 2008, respectively.

Vehicle Repurchase Obligations

In November 2008, we and GMAC agreed to expand our repurchase obligations for GMAC financed inventory at certain of our dealers in the United States and Canada. The maximum potential amount of future payments we could be required to make under this guarantee would be based on the repurchase value of total eligible vehicles financed by GMAC in dealer stock, estimated to be $19.3 billion and $19.8 billion at March 31, 2009 and December 31, 2008, respectively. We and GMAC intend to extend our repurchase obligations to include GMAC financed inventory at dealers in Europe, Brazil and certain other countries. If GM is required to repurchase vehicles under these agreements, the total exposure would be reduced to the extent we are able to resell the vehicle to another dealer. The fair value of the guarantee, which considers the likelihood of dealers terminating and estimated loss exposure for ultimate disposition of vehicles, was $7 million and $8 million at March 31, 2009 and December 31, 2008, respectively.

Balance Sheet

The following table summarizes the balance sheet effects of transactions with GMAC:

 

     March 31,
2009
   December 31,
2008
   March 31,
2008
     (Dollars in millions)

Assets

        

Accounts and notes receivable, net (a)

   $ 876    $ 661    $ 1,167

Other assets (b)

   $ 497    $ 484    $ 586

Liabilities

        

Accounts payable (c)

   $ 254    $ 294    $ 666

Short-term debt and current portion of long-term debt (d)

   $ 1,475    $ 2,295    $ 2,544

Accrued expenses and other liabilities (e)

   $ 1,620    $ 1,958    $ 1,978

Long-term debt (f)

   $ 97    $ 101    $ 116

 

(a) Represents wholesale settlements due from GMAC, amounts owed by GMAC with respect to the Equipment on operating leases, net transferred to us, and the receivables for exclusivity fees and royalties.

 

(b) Represents certificates of deposit purchased from GMAC to which we have title and distributions due from GMAC on our Preferred Membership Interests.

 

(c) Primarily represents amounts billed to us and payable related to our incentive programs.

 

(d) Represents wholesale financing, sales of receivable transactions and the short-term portion of term loans provided to certain dealerships which we own or in which we have an equity interest. In addition, it includes borrowing arrangements with GME locations and arrangements related to GMAC’s funding of our company-owned vehicles, rental car vehicles awaiting sale at auction and funding of the sale of our vehicles to which we retain title while the vehicles are consigned to GMAC or dealers, primarily in the United Kingdom. Our financing remains outstanding until the title is transferred to the dealers. This amount also includes the short-term portion of a note related to the Equipment on operating leases, net.

 

(e) Primarily represents accruals for marketing incentives on vehicles which are sold, or anticipated to be sold, to customers or dealers and financed by GMAC in the U.S. This includes the estimated amount of residual support accrued under the residual support and risk sharing programs, rate support under the interest rate support programs, operating lease and finance receivable capitalized cost reduction incentives paid to GMAC to reduce the capitalized cost in automotive lease contracts and retail automotive contracts, and amounts owed under lease pull-ahead programs. In addition it includes interest accrued on the transactions in (d) above.

 

(f) Primarily represents the long-term portion of term loans from GMAC to certain dealerships consolidated by us and a note payable with respect to the Equipment on operating leases, net transferred to us from GMAC.

 

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Statement of Operations

The following table summarizes the income statement effects of transactions with GMAC:

 

     Three Months Ended March 31,  
         2009             2008      
     (Dollars in millions)  

Net sales and revenue (a)

   $ 182     $ (716 )

Cost of sales and other expenses (b)

   $ 76     $ 156  

Interest income and other non-operating income, net (c)

   $ 74     $ 85  

Interest expense (d)

   $ 45     $ 56  

Servicing expense (e)

   $ 9     $ 28  

Derivative gains (losses) (f)

   $ (1 )   $ 5  

 

(a) Primarily represents the (reduction) or increase in net sales and revenues for marketing incentives on vehicles which are sold, or anticipated to be sold, to customers or dealers and financed by GMAC. This includes the estimated amount of residual support accrued under residual support and risk sharing programs, rate support under the interest rate support programs, operating lease and finance receivable capitalized cost reduction incentives paid to GMAC to reduce the capitalized cost in automotive lease contracts and retail automotive contracts, and costs under lease pull-ahead programs. This amount is offset by net sales for vehicles sold to GMAC for employee and governmental lease programs and third party resale purposes. In the three months ended March 31, 2009, we adjusted our risk sharing reserve for improved residual values and recorded a favorable adjustment to net sales and revenue of $607 million.

 

(b) Primarily represents cost of sales on the sale of vehicles to GMAC for employee and governmental lease programs and third party resale purposes. Also includes miscellaneous expenses on services performed for us by GMAC.

 

(c) Represents income on our Preferred Membership Interests in GMAC, exclusivity and royalty fee income and reimbursements by GMAC for certain services we provided. Included in this amount is rental income related to GMAC’s primary executive and administrative offices located in the Renaissance Center in Detroit, Michigan. The lease agreement expires on November 30, 2016.

 

(d) Represents interest incurred on term loans, notes payable and wholesale settlements.

 

(e) Represents servicing fees paid to GMAC on the automotive leases we retained.

 

(f) Represents amounts recognized in connection with a derivative transaction entered into with GMAC as the counterparty.

Note 17. Segment Reporting

Our four segments consist of GMNA, GME, GMLAAM and GMAP. We manufacture our cars and trucks in 35 countries under the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab, Saturn, Vauxhall and Wuling.

Due to the restructuring efforts associated with our Revised Viability Plan as previously discussed, the resulting focus on our core automotive business, and significant changes in our ownership interests in and ability to influence the operations of GMAC, our financial statements no longer present our FIO operations as a separate segment, which resulted in the following changes to the condensed consolidated financial statements in the three months ended March 31, 2009: (1) Financial services and insurance revenue were reclassified to Other Revenue; (2) Financial services and insurance expense was reclassified to Other expenses; and (3) separate FIO balance sheet line items are no longer presented. Certain reclassifications were made to the comparable 2008 information to conform to the current period presentation. Refer to Note 2.

Reflecting the elimination of our FIO segment, Corporate and Other includes our 60% share of GMAC’s operating results, which we account for under the equity method, two special purpose entities holding automotive leases previously owned by GMAC and its affiliates that we retained, the elimination of intersegment transactions between our automotive segments and Corporate and Other, certain nonsegment specific revenues and expenses, including costs related to postretirement benefits for Delphi and other retirees, and certain corporate activities.

 

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All intersegment balances and transactions have been eliminated in consolidation.

 

     GMNA     GME     GMLAAM    GMAP     GMA
Eliminations
    Total
GMA
    Corporate
& Other
    Total  
     (Dollars in millions)  

At and for the Three Months ended March 31, 2009

                 

Automotive sales

                 

External customers

   $ 11,812     $ 5,227     $ 3,418    $ 1,796     $     $ 22,253     $ (21 )   $ 22,232  

Intersegment

     507       91       28      633       (1,259 )                  
                                                               

Total automotive sales

     12,319       5,318       3,446      2,429       (1,259 )     22,253       (21 )     22,232  

Other revenue

                                        199       199  
                                                               

Total net sales and revenue

   $ 12,319     $ 5,318     $ 3,446    $ 2,429     $ (1,259 )   $ 22,253     $ 178     $ 22,431  
                                                               

Depreciation and amortization

   $ 1,681     $ 547     $ 54    $ 116     $ 21     $ 2,419     $ 121     $ 2,540  

Equity in loss of GMAC LLC

   $     $     $    $     $     $     $ (500 )   $ (500 )

Equity income (loss), net of tax

   $ (59 )   $ (2 )   $ 2    $ 107     $     $ 48     $     $ 48  

Income (loss) attributable to GM Common Stockholders before interest and income taxes

   $ (3,216 )   $ (1,989 )   $ 16    $ (21 )   $ 54     $ (5,156 )   $ (695 )   $ (5,851 )

Interest income

                                        86       86  

Interest expense

                                        (1,230 )     (1,230 )

Gain on extinguishment of debt

                                        906       906  
                                                               

Net income (loss) attributable to GM Common Stockholders before income taxes

   $ (3,216 )   $ (1,989 )   $ 16    $ (21 )   $ 54     $ (5,156 )   $ (933 )   $ (6,089 )
                                                               

Investments in nonconsolidated affiliates

   $ (4 )   $ 259     $ 33    $ 1,382     $     $ 1,670     $ 777     $ 2,447  

Total assets

   $ 68,298     $ 15,851     $ 7,170    $ 9,496     $ (11,745 )   $ 89,070     $ (6,780 )   $ 82,290  

Expenditures for property

   $ 897     $ 415     $ 90    $ 84     $ 73     $ 1,559     $ 7     $ 1,566  

Significant noncash charges (gains)

                 

Gain on extinguishment of debt

   $     $     $    $     $     $     $ (906 )   $ (906 )

Impairment of equipment on operating leases

     11       12                        23       16       39  

Impairment of CAMI investment

     28                              28             28  

Impairment of long-lived assets

     320             3      25             348             348  
                                                               

Total significant noncash charges (gains)

   $ 359     $ 12     $ 3    $ 25     $     $ 399     $ (890 )   $ (491 )
                                                               

 

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     GMNA     GME    GMLAAM    GMAP    GMA
Eliminations
    Total
GMA
   Corporate
and Other
    Total  
     (Dollars in millions)  

At and for the Three Months ended March 31, 2008

                    

Automotive sales

                    

External customers

   $ 24,006     $ 9,232    $ 4,666    $ 4,040    $     $ 41,944    $     $ 41,944  

Intersegment

     537       677      97      1,256      (2,567 )                 
                                                            

Total automotive sales

     24,543       9,909      4,763      5,296      (2,567 )     41,944            41,944  

Other revenue

                                     439       439  
                                                            

Total net sales and revenue

   $ 24,543     $ 9,909    $ 4,763    $ 5,296    $ (2,567 )   $ 41,944    $ 439     $ 42,383  
                                                            

Depreciation and amortization

   $ 1,263     $ 464    $ 80    $ 187    $ 13     $ 2,007    $ 222     $ 2,229  

Equity in loss of GMAC LLC

   $     $    $    $    $     $    $ (1,612 )   $ (1,612 )

Equity income (loss), net of tax

   $ (20 )   $ 13    $ 5    $ 134    $     $ 132    $     $ 132  

Income (loss) attributable to GM Common Stockholders before interest and income, taxes

   $ (449 )   $ 118    $ 500    $ 310    $ 5     $ 484    $ (2,568 )   $ (2,084 )

Interest income

                                     260       260  

Interest expense

                                     (805 )     (805 )
                                                            

Net income (loss) attributable to GM Common Stockholders before income taxes

   $ (449 )   $ 118    $ 500    $ 310    $ 5     $ 484    $ (3,113 )   $ (2,629 )
                                                            

Investments in nonconsolidated affiliates

   $ 205     $ 419    $ 43    $ 1,228    $     $ 1,895    $ 5,427     $ 7,322  

Total assets

   $ 91,873     $ 29,023    $ 8,251    $ 15,085    $ (11,847 )   $ 132,385    $ 13,323     $ 145,708  

Expenditures for property

   $ 1,245     $ 347    $ 77    $ 235    $ 25     $ 1,929    $ 16     $ 1,945  

Significant noncash charges

                    

Impairment of GMAC Common

                    

Membership Interests

   $     $    $    $    $     $    $ 1,310     $ 1,310  

Impairment of GMAC Preferred

                    

Membership Interests

                                     142       142  

Valuation allowances against deferred tax assets

                                     394       394  

Impairment of long-lived assets

           26                      26            26  
                                                            

Total significant noncash charges

   $     $ 26    $    $    $     $ 26    $ 1,846     $ 1,872  
                                                            

 

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Note 18. Subsequent Events

On April 6, 2009, the U.S. Department of Energy determined that we did not meet the financial viability requirements to qualify for federal funding of our advanced technology vehicle programs under Section 136 of EISA. The U.S. Department of Energy’s determination was based on the UST’s response to our Viability Plan that we submitted to the UST on February 17, 2009. We expect that the Department of Energy will determine that we meet the viability requirements under EISA if the UST approves our Revised Viability Plan.

On April 27, 2009 our Revised Viability Plan was announced whereby we plan to reduce our total number of assembly, powertrain and stamping plants in the U.S. and significantly reduce our U.S. hourly and salaried headcount by certain target dates (refer to Note 2). We are currently evaluating the effect our Revised Viability Plan will have on our employee benefit accounting.

On April 29, 2009, General Motors of Canada Ltd. (GMCL) entered into a Loan Agreement with Export Development Canada (EDC). The EDC Loan Agreement provides GMCL with C$3.0 billion in a 3-year short term bridge loan to restore liquidity to its business, and to restore stability to the domestic automobile industry in Canada. GMCL borrowed C$0.5 billion under the EDC Loan Agreement on April 30, 2009. Since the EDC Loan Agreement is considered to be bridge financing and not longer term financing, the receipt of this financial support has not satisfied the condition precedent to the 2009 CAW Agreement described in Note 8.

The EDC Loan Agreement is scheduled to mature on April 28, 2012, unless the maturity date is accelerated in the event of default. Amounts outstanding under the EDC Loan Agreement accrue interest at a rate per annum equal to the three-month CDOR rate (which will be no less than 2.0%) plus 3.0%, and accrued interest is payable quarterly, beginning September 30, 2009.

We may also voluntarily repay the Loans in whole or in part at any time. Once repaid, amounts borrowed under the Loan Agreement may not be re-borrowed.

The EDC Loan Agreement is secured by: (1) a first lien of GMCL’s unencumbered assets; (2) a second lien on GMCL assets in Canada pledged as collateral under the Secured Revolver Facility; (3) a second lien on our 65% equity stake in GMCL pledged to UST; (4) a first lien on our 35% stake in GMCL; (5) a first lien on assets of various subsidiaries; and (6) a pledge of GMCL’s shares in various subsidiaries.

The EDC Loan Agreement includes various representations and warranties and various affirmative and negative covenants. The affirmative covenants impose obligations with respect to, among other things, financial and other reporting to the EDC, compliance with the UST Loan Facility, statements further identifying and describing the collateral, compliance with certain laws, preservation of the collateral, and performance of due diligence reviews.

The negative covenants restrict us with respect to, among other things, fundamental changes, lines of business, transactions with affiliates, liens, distributions, amendments or waivers of certain documents, prepayments of senior loans, indebtedness, investments, restrictions on pension plans and other pension fund matters, actions adverse to the collateral, limitation of sale of assets, and joint venture agreements.

The EDC Loan Agreement also includes various events of default and entitles the EDC to accelerate the repayment of the EDC Loans upon the occurrence and during the continuation of an event of default. The events of default relate to, among other things, our failure to pay principal or interest on the EDC Loans; the failure to satisfy the covenants; initiation of the termination of, in whole or in part, any Canadian pension plan; failure to make minimum required contributions to amortize any funding deficiencies under a Canadian pension plan, or an event of default shall have occurred under and as defined in the US Loan and Security Agreement or under any other U.S. Credit Facility Documents.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the accompanying condensed consolidated financial statements, which have been prepared assuming that we will continue as a going concern, and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008 (2008 10-K). As discussed in Note 2 to the condensed consolidated financial statements, our recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 2 to the condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We are primarily engaged in the worldwide production and marketing of cars and trucks. We develop, manufacture and market vehicles worldwide through our four automotive segments which consist of GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Middle East (GMLAAM) and GM Asia Pacific (GMAP). We also own a 60% equity interest in GMAC LLC (GMAC), which is accounted for under the equity method of accounting. GMAC provides a broad range of financial services, including consumer vehicle financing, automotive dealership and other commercial financing, residential mortgage services, automobile service contracts, personal automobile insurance coverage and selected commercial insurance coverage. As part of the conversion of GMAC to a Bank Holding Company (BHC), we have agreed to reduce our ownership to less than 10% of the voting and total equity interest in GMAC, including the shares purchased in 2009, into a series of trusts. Pursuant to our understanding with the U.S. Treasury, all but 7.4% of our common equity interest in GMAC will be placed in one or more trusts by May 24, 2009, for ultimate disposition. We will be the beneficial owner of these trusts, but the trusts’ assets will be controlled by the trustee. The trusts must dispose of the shares within three years.

Due to the restructuring efforts associated with our plan to achieve and sustain our long-term viability, international competitiveness and energy efficiency (Revised Viability Plan), the resulting focus on our core automotive business, and significant changes in our ownership interests in and ability to influence the operations of GMAC (as more fully described in Note 4 to the condensed consolidated financial statements), we no longer regularly review our financing and insurance operations’ (FIO) results in order to make decisions regarding the allocation of resources to it or assess its performance as a separate business. As a result, in the three months ended March 31, 2009, our financial statements no longer present our FIO operations as a separate segment, which resulted in the following changes: (1) Financial services and insurance revenue were reclassified to Other revenue; (2) Financial services and insurance expense was reclassified to Other expenses; and (3) separate FIO balance sheet line items were eliminated. Certain reclassifications were made to the comparable 2008 financial statements to conform to the current period presentation.

On January 1, 2009 we adopted SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” and FSP No. APB 14-1. “Accounting for Convertible Debt Instruments that may be settled in cash upon conversion (including Partial Cash Settlement).” Refer to Note 2 to the condensed consolidated financial statements.

Consistent with industry practice, our market share information includes estimates of industry sales in certain countries where public reporting is not legally required or otherwise available on a consistent basis.

The following provides a summary of significant results and events in the three months ended March 31, 2009, as well as an update from our 2008 10-K of the global automotive industry, including current market challenges, key factors affecting current and future results, and our previous Viability Plan and Revised Viability Plan.

Recent Developments

Business Updates

Our dealers in the United States sold 413,000 vehicles during the first quarter of 2009, a decline of approximately 49% compared to the corresponding period in 2008. The baseline sales assumption in our Revised Viability Plan for the United States in 2009 is 2,048,000 vehicles, which is based on a baseline industry vehicle sales forecast for 2009 of 10.5 million total vehicles sold in the United States. Our market share forecast for 2009 is 19.5% in the United States.

 

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Due to the decline in vehicle sales by our dealers in the United States and globally and continuing weak economic conditions generally, we experienced substantial negative cash flow from operations in the three months ended March 31, 2009 and reported significantly less revenue than we did in the corresponding period in 2008.

UST Loan Agreements and Section 136 Loans

In December 2008 we entered into the UST Loan Agreement with the United States Department of the Treasury (UST), pursuant to which the UST agreed to provide us with a $13.4 billion secured term loan facility. We borrowed $4.0 billion under this facility in December 2008, $5.4 billion in January 2009 and $4.0 billion in February 2009. As further discussed below, in April 2009, we entered into an amendment to increase the availability under the loan facility to $15.4 billion and drew down the remaining $2.0 billion. In January 2009 we entered into the UST GMAC Loan Agreement, pursuant to which we borrowed $884 million from the UST and utilized those funds to purchase additional membership interests in GMAC, increasing our common equity interest in GMAC from 49% to 60%.

The loans under the UST Loan Agreement and the UST GMAC Loan Agreement are scheduled to mature on December 30, 2011 and January 16, 2012, respectively. The maturity dates may be accelerated if, among other things, the President’s Designee has not certified our Revised Viability Plan by the Certification Deadline, which was initially March 31, 2009 and has been postponed to June 1, 2009, as discussed below.

On March 30, 2009, the President’s Designee found that our Viability Plan, in its then-current form, was not viable and would need to be revised substantially in order to lead to a viable GM. The President’s Designee also concluded that certain steps required to be taken by March 31, 2009 under the UST Loan Agreement, including receiving approval of the required labor modifications by members of our unions, obtaining receipt of all necessary approvals of the required VEBA modifications (other than regulatory and judicial approvals) and commencing the exchange offers to implement the required debt reduction, had not been completed, and as a result, we had not satisfied the terms of the UST Loan Agreement.

In conjunction with the March 30, 2009 announcement, the administration announced that it would offer us adequate working capital financing for a period of 60 days while it worked with us to develop and implement a more accelerated and aggressive restructuring that would provide us with a sound long-term foundation. On March 31, 2009, we and the UST entered into amendments to the UST Loan Agreement and the UST GMAC Loan Agreement to postpone the Certification Deadline to June 1, 2009 and, with respect to the UST Loan Agreement, to also postpone the deadline by which we are required to provide the Company Report to June 1, 2009. In addition, on April 22, 2009, we entered into a second amendment to the UST Loan Agreement to increase the amount available for borrowing to $15.4 billion. We borrowed an additional $2.0 billion in working capital loans on April 24, 2009. In conjunction with the second amendment, we issued a promissory note in the amount of $133 million to the UST for which we received no additional consideration.

On April 6, 2009, the U.S. Department of Energy determined that we did not meet the financial viability requirements to qualify for federal funding of our advanced technology vehicle programs under Section 136 of the Energy Independence and Security Act of 2007 (EISA). The U.S. Department of Energy’s determination was based on the UST’s response to our Viability Plan that we submitted to the UST on February 17, 2009. We expect that the Department of Energy will determine that we meet the viability requirements under EISA if the UST approves our Revised Viability Plan.

Refer to Note 2 to the condensed consolidated financial statements for a summary of significant cost reduction and restructuring actions contemplated by our Revised Viability Plan.

Changes in Management

On March 29, 2009, G. Richard Wagoner, Jr. announced his resignation as Chairman and Chief Executive Officer. Following Mr. Wagoner’s resignation, Kent Kresa was named interim Chairman, and Frederick A. Henderson was named Chief Executive Officer. At the same time, we announced our intention to reconstitute our Board of Directors such that new directors will make up the majority of the Board.

 

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Automotive Supplier Financing

On March 19, 2009 the UST announced that it will provide up to $5.0 billion in financial assistance to automotive suppliers by guaranteeing or purchasing certain of the receivables payable by us (Receivables Program). On April 3, 2009, GM Supplier Receivables LLC (GM Receivables), a bankruptcy-remote special purpose entity we have established, and the UST entered into various agreements to establish our participation in the Receivables Program. The Receivables Program is expected to operate for up to one year and may, at the UST’s direction, be extended for a longer term. We have begun the process of qualifying certain suppliers of goods and services to participate in the Receivables Program.

In order to fund these purchases of receivables and operate the Receivables Program, it is expected that we will make equity contributions to GM Receivables of up to $175 million, and the UST will loan up to $3.5 billion to GM Receivables.

U.S. Government Warranty Program

On March 30, 2009 the U.S. Government announced that it will create a warranty program pursuant to which a separate account will be created and funded to pay for repairs covered by our warranty on each new vehicle sold by us during our restructuring period. The cash contribution to fund the program will be equal to 125% of the costs projected by us that are required to satisfy anticipated claims under the warranties issued on those vehicles. We will contribute cash equal to a portion of the projected cost, and we will borrow the amount necessary to make the remaining required cash contribution from the UST. We are still discussing with the UST the ultimate scope, structure, and terms of the warranty program.

Foreign Restructuring Activities

Saab Automobile AB (Saab) filed for reorganization protection under the laws of Sweden in February 2009. In connection with this reorganization, we have contacted a number of bidders and have provided them with information regarding Saab’s operations. Saab may receive third party financing, but we do not intend to make any additional investment in Saab.

In March 2009, we reached an agreement with the Canadian Auto Workers Union (CAW), which we expect will reduce the legacy costs associated with our Canadian operations. This agreement is contingent upon our successfully receiving longer term funding from the government of Canada for our Canadian operations. We are currently in advanced discussions with the government of Canada with respect to such funding. Final terms and conditions are still to be determined but we expect to reach an agreement shortly. On April 29, 2009 GMCL entered into a Loan Agreement with Export Development Canada (EDC). The EDC Loan Agreement provides GMCL with C$3.0 billion in a 3-year short term bridge loan to restore liquidity to its business. GMCL borrowed C$0.5 billion under the EDC Loan Agreement on April 30, 2009. Since the EDC Loan Agreement is considered to be bridge financing and not longer term financing, the receipt of this financial support does not satisfy the contingency included in the CAW agreement.

We continue to work towards a restructuring of our German and certain other European operations, which could include a third party investment in a new vehicle manufacturing company that would own all or a significant part of our European operations. We are currently in talks with the German government and several parties with respect to such an investment. If consummated, this restructuring could significantly reduce our ownership interest and control over our European operations.

We are engaged in discussions with governments in various other foreign countries in which we operate regarding financial support for foreign operations.

Strategic Initiatives

We believe that the continuing downturn in the global automotive industry is likely to cause significant changes in ownership and consolidation among vehicle manufacturers and other industry participants. We are currently considering a wide range of shared interest and