GM Reports Preliminary 2005 Financial Results

DETROIT January 26, 2006; General Motors Corp. today reported a 2005 calendar-year loss, excluding special items, of $3.4 billion, or $5.99 per share, compared with net income of $3.6 billion, or $6.37 per share, in 2004.

Including special items, GM reported a loss of $8.6 billion, or $15.13 per share for 2005, compared to net income of $2.8 billion, or $4.92 per share in the year-ago period. Revenue was $192.6 billion in 2005, compared to $193.5 billion in 2004.

“2005 was one of the most difficult years in GM's history, driven by poor performance in North America,” GM Chairman and Chief Executive Officer Rick Wagoner said. “ It was a year in which two significant fundamental weaknesses in our North American operations were fully exposed -- our huge legacy cost burden and our inability to adjust structural costs in line with falling revenue. Our results were also dramatically and adversely affected by charges for restructuring and matters associated with Delphi Corp.’s Chapter 11 filing.

“In order to improve financial results in 2006 and 2007, we are moving quickly to implement several important actions that will address these weaknesses in North America. And, we have a good line of sight on the steps we need to take to further reduce structural costs on a global basis that will position GM for long-term success,” Wagoner added.

Fourth Quarter Results

GM reported a loss of $1.2 billion, or $2.09 per diluted share in the fourth quarter of 2005, excluding special items. These results compare to adjusted earnings of $726 million, or $1.28 per share in the year ago period. Revenue was $51.2 billion compared to $51.4 billion a year ago.

Including special items, GM reported a loss of $4.8 billion, or $8.45 per diluted share in the fourth quarter of 2005, compared to a loss of $99 million, or $0.18 per share in the fourth quarter of 2004.

The reported results for the fourth quarter of 2005 include special items totaling $3.6 billion after tax, or $6.36 per diluted share. These items are primarily attributable to an after-tax restructuring charge of $1.3 billion at GM North America and a preliminary after-tax charge of $2.3 billion associated with the UAW/Delphi benefit guarantee. Additional details on the special items are included below and in the “Highlights” section of the press release.

GM’s results for the fourth quarter of 2005 and the calendar year are preliminary and may be revised prior to the filing of GM’s 2005 annual report on Form 10-K in mid-March, depending on changes, if any, to the Delphi related accrual and completion of the previously disclosed supplier credits study.

GM financial results described throughout the remainder of this release exclude special items unless otherwise noted (see "Highlights").

GM Automotive Operations

GM's automotive operations reported an adjusted loss of $5.3 billion in 2005, compared to adjusted earnings of $1.2 billion in 2004. The decline was principally driven by large losses in North America, partially offset by improved results in Europe and in the Latin America, Africa and Middle East region.

In the fourth quarter of 2005 GM’s automotive operations reported an adjusted loss of $1.5 billion compared to adjusted earnings of $268 million in the year-ago period.

GM sold 9.2 million vehicles worldwide in 2005, the second-largest volume in GM’s history, on the strength of increased sales in three of GM’s four business regions and all-time sales records in our Asia Pacific and Latin America, Africa and Middle East regions. Vehicle sales in the Asia Pacific region were up 20 percent, the Latin America, Africa and Middle East region increased 19 percent, and Europe posted a 1.3 percent gain in one of the most competitive markets in the world. Unit sales were down 3.1 percent in North America in 2005. As a result, GM’s share of the global automotive market was 14.2 percent in 2005, down from 14.4 percent in 2004.

GM North America (GMNA) reported an adjusted loss of $5.6 billion in 2005, compared to adjusted earnings of $1.1 billion in 2004, reflecting a weaker sales mix, lower production volumes stemming from a significant reduction in dealer inventories and lower market share, increased material costs including those for product improvements, continuing high health-care costs and increased spending on marketing and advertising.

In the fourth quarter of 2005, GMNA reported an adjusted loss of $1.5 billion, compared to adjusted earnings of $449 million in the year-ago period. The loss in the fourth-quarter of 2005 was primarily attributable to lower production of full-sized sport utility vehicles due to the start-up of the all-new next generation vehicles in this category, increased health-care costs, and higher marketing and advertising spending. In addition, there were favorable non-recurring items in the year-ago period.

“GM’s top priority is to restore our North American operations to profitability and positive cash flow as quickly as possible,” Wagoner said. “In 2005, we laid out a comprehensive and integrated strategy to address the structural issues that impede our competitiveness and profitability, and we are focused on rapidly executing all aspects of the turnaround plan.”

In support of growing revenues, GM continued to invest heavily in revitalizing its product portfolio despite recent financial challenges, with global capital spending up about $1 billion in 2005. Ongoing or upcoming product launches include new full-sized sport utility vehicles and pick-up trucks, additional crossover vehicles, and a significantly expanded line-up at Saturn.

In addition, GM has revitalized its marketing strategy in North America by moving to simple, compelling pricing that is expected to result in lower spending on incentives, clearer focus and differentiation of GM’s vehicle brands, and enhanced focus on GM’s highly competitive new cars and trucks.

“There is a cost for implementing these revenue initiatives, but we know that in addition to addressing our cost situation, we need great cars and trucks and strong brands to improve our revenue and our bottom line,” Wagoner said.

GM expects to reduce its North American structural costs by $6 billion on a running-rate basis by the end of 2006, with more than $4 billion of the reduction coming in calendar year 2006, and to reduce its net material costs by $1 billion. Key elements of the structural cost reduction plan include the health-care agreement with the United Auto Workers union, which accounts for about $3 billion of the annual expense savings (excluding the impact of payments to the defined contribution Voluntary Employees’ Beneficiary Association Trust); the capacity utilization initiatives and other manufacturing initiatives, which total about $1.5 billion; and additional productivity and cost efficiencies in other areas of the business especially engineering, advertising, and salaried employment levels and benefits.

“The historic agreement we signed with the UAW in October, and the capacity reduction announcements we made in November that give rise to the North American restructuring charge, are important and significant steps on the road to recovery,” said Wagoner. “But it’s clear that we need to do more, and so we are focused on that with our recently announced objective to reduce global structural costs to 25 percent of automotive revenue by 2010, from the current level of approximately 34 percent.”

Wagoner said this structural cost target is designed to create a competitive advantage for GM in an intensely competitive environment of excess industry capacity, increasing regulatory costs, and more product entries.

“We will be very focused in how we accomplish this,” Wagoner said. “For example, we need to continue to lower our overall manufacturing costs, reduce our huge legacy cost disadvantage burden, and improve our sourcing footprint – all areas where we have a cost disadvantage today against the global benchmarks. At the same time, while we continue to drive productivity improvement in product development, research and development, and marketing, it’s important that we maintain competitive spending levels in these revenue-driving aspects of our business.”

In connection with the North American manufacturing capacity actions announced in

November, GM recorded an after-tax charge of $1.3 billion in the fourth quarter of 2005 as a special item. This charge includes approximately $800 million associated with the employees at the facilities where GM plans to cease production, and about $500 million for the non-cash write-down of property, plants and equipment.

The employee costs principally represent cash payments that will be made to affected employees during the current labor agreement, which expires in September 2007, attributable to the JOBS bank provisions of that agreement. GM is currently in discussions with the UAW on an accelerated attrition program, and the outcome of these discussions could affect the timing and amount of subsequent charges.

GM Europe (GME) cut its losses nearly in half in 2005 to an adjusted loss of $375 million from an adjusted loss of $742 million in 2004, as continued improvement in both structural and material costs and higher production volumes were partially offset by negative pricing. GME reported an adjusted loss of $159 million in the fourth quarter of 2005, an improvement from the adjusted loss of $345 million reported in the year-ago quarter.

“Our European turnaround plan remains on track and we expect to see more progress in 2006,” Wagoner said. “In addition to the continued implementation of our significant cost reduction initiatives, we expect to benefit again this year from the introduction of new products such as the Opel Corsa. And, we’ll continue to focus on the rollout of our multi-brand strategy in Europe, and particularly efforts to expand the Chevrolet brand.”

GM Asia Pacific (GMAP) reported adjusted earnings of $524 million in 2005, compared to $729 million in 2004, reflecting unfavorable volume and shifting sales mix at GM’s Holden unit, and higher costs associated with GM’s growth initiatives in China. For the fourth quarter of 2005, GMAP reported adjusted earnings of $112 million, down from $117 million in the fourth quarter of 2004.

“The fastest growing automotive region on the globe, Asia Pacific, continues to be a positive story for GM. We achieved a number of important milestones in 2005,” Wagoner said. “For the first time in our history, we sold more than 1 million vehicles in Asia Pacific, increasing our market share there to 5.8 percent. And importantly, in China, now the second-largest market behind the United States, GM became the leading foreign brand.”

GM Latin America/Africa/Middle East (GMLAAM) reported adjusted earnings of $124 million in 2005, up from $85 million in 2004. For the fourth quarter of 2005 GMLAAM reported adjusted earnings of $20 million, compared to $47 million in the year-ago quarter, primarily driven by unfavorable foreign exchange rates in Brazil.

“GM continues to set sales and market share records in the Latin America/Africa/Middle East region,” Wagoner said. “In 2005, GM sold a record 881,000 vehicles in the region, marking our eighth consecutive year of sales and market share leadership. Our focus for 2006 is to continue to leverage our position in South Africa, accelerate our turnaround program in Brazil and build on our strong performance in the Middle East and other Andean regions.”

GMAC

General Motors Acceptance Corporation (GMAC) earned $2.8 billion in 2005, down from record earnings of $2.9 billion in 2004. In the fourth quarter of 2005, GMAC earned $614 million, compared to $683 million in the year-ago period.

“GMAC continued to post strong earnings in 2005 despite some very difficult challenges,” Wagoner said. “And, despite the significant impact of lower credit ratings, GMAC continued to maintain strong liquidity.”

GMAC had cash reserve balances at Dec. 31, 2005 of approximately $20 billion, including $15.8 billion in cash and cash equivalents and $4.2 billion in marketable securities. In 2005, GMAC paid a dividend to GM of $2.5 billion, including $1 billion in the fourth quarter of 2005.

GMAC’s financing operations reported earnings of $1.1 billion in 2005, down from $1.5 billion in 2004. The decrease is primarily due to lower net interest margins as a result of increased borrowing costs. The decline in net interest margins was somewhat mitigated by lower consumer credit provisions, primarily as a result of lower asset levels, and the impact of improved used vehicle prices on terminating leases.

Mortgage operations earned a record $1.4 billion, up from $1.1 billion in 2004, reflecting increases in both the residential and commercial mortgage operations. GMAC’s residential mortgage businesses benefited from increased loan production, favorable credit experience, improved mortgage servicing results and gains on sales of mortgages. GMAC Commercial Mortgage also experienced an increase in earnings as compared to the prior year largely due to record loan origination volume, higher gains on sales of loans and increases in fee and investment income.

GMAC’s insurance operations generated record net income of $417 million in 2005, up from $329 million in 2004. The increase reflects a combination of strong results achieved through increased premium revenue, higher capital gains and improved investment portfolio performance.

Cash and Liquidity

Cash, marketable securities, and readily-available assets of the Voluntary Employees’ Beneficiary Association (VEBA) Trust totaled $20.5 billion at Dec. 31, 2005, up from $19.2 billion on Sept. 30, 2005. This excludes GMAC’s cash reserve balances of approximately $20 billion at Dec. 31, 2005. GM withdrew approximately $1.2 billion from the VEBA Trust in the fourth quarter of 2005.

In October of 2005, GM estimated that its contingent exposure relating to the benefit guarantees for certain former GM U.S. hourly employees who transferred to Delphi, ranged from zero to $12 billion. GM now believes that the range is between $3.6 billion and $12 billion with amounts closer to the low-end of the revised range considered the company’s best estimate assuming an agreement is reached between GM, Delphi and its unions.

As a result, GM established a reserve of $3.6 billion ($2.3 billion after tax) and this is included as a non-cash charge in the fourth quarter of 2005. The amount of this charge may change between now and when GM files its Form 10-K with the SEC, depending on the status of discussions between GM, Delphi and its unions and other factors. GM is currently unable to estimate the amount of additional charges, if any, that may arise from Delphi ’s Chapter 11 filing. A consensual agreement to resolve the Delphi matter may cause GM to incur additional costs in exchange for benefits that would accrue to GM over time.

Forward-looking Statements

In this press release and in related comments by General Motors’ and General Motors Acceptance Corporation’s management, the use of the words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” “designed,” “impact,” or the negative of any of those words or similar expressions is intended to identify forward-looking statements. All statements in this press release and in related comments, other than statements of historical fact, including without limitation, statements about future events and financial performance, are forward-looking statements that involve certain risks and uncertainties.

While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results, and GM’s actual results may differ materially due to numerous important factors that are described in GM’s most recent report on SEC Form 10-K, which may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K. Such factors include, among others, the following: the ability of GM to realize production efficiencies, to achieve reductions in costs as a result of the turnaround restructuring and health care cost reductions and to implement capital expenditures at levels and times planned by management; the pace of product introductions; market acceptance of the corporation’s new products; significant changes in the competitive environment and the effect of competition in the corporation’s markets, including on the corporation’s pricing policies; our ability to maintain adequate financing sources and an appropriate level of debt; restrictions on GMAC’s and Residential Capital Corporation (ResCap)’s ability to pay dividends and prepay subordinated debt obligations to us; changes in the existing, or the adoption of new, laws, regulations, policies or other activities of governments, agencies and similar organizations where such actions may affect the production, licensing, distribution or sale of our products, the cost thereof or applicable tax rates; costs and risks associated with litigation; the final results of investigations by the SEC; changes in our accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, which could result in an impact on earnings; changes in relations with unions and employees/retirees and the legal interpretations of the agreements with those unions with regard to employees/retirees; labor strikes or work stoppages at GM or at key suppliers such as Delphi Corp.; additional credit rating downgrades; the impact of a potential sale or other extraordinary transaction involving GMAC on the results of GM’s and GMAC’s operations and liquidity; other factors impacting financing and insurance operating segments’ results of operations and financial condition such as credit ratings, adequate access to the market, changes in the residual value of off-lease vehicles, changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which our mortgage subsidiaries operate, and changes in our contractual servicing rights; shortages of and price increases for fuel; and changes in economic conditions, commodity prices, currency exchange rates or political stability in the markets in which we operate.

In addition, GMAC’s actual results may differ materially due to numerous important factors that are described in GMAC’s most recent report on SEC Form 10-K, which may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K. Such factors include, among others, the following: the ability of GM, to complete a transaction with a strategic investor regarding a controlling interest in GMAC while maintaining a significant stake in GMAC, securing separate credit ratings and low cost funding to sustain growth for GMAC and ResCap and maintaining the mutually beneficial relationship between GMAC and GM; significant changes in the competitive environment and the effect of competition in the corporation’s markets, including on the corporation’s pricing policies; our ability to maintain adequate financing sources; our ability to maintain an appropriate level of debt; the profitability and financial condition of GM, including changes in production or sales of GM vehicles, risks based on GM’s contingent benefit guarantees and the possibility of labor strikes or work stoppages at GM or at key suppliers such as Delphi Corp.; funding obligations under GM and its subsidiaries’ qualified U.S. defined benefits pension plans; restrictions on ResCap’s ability to pay dividends and prepay subordinated debt obligations to us; changes in the residual value of off-lease vehicles; changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which our mortgage subsidiaries operate; changes in our contractual servicing rights; costs and risks associated with litigation; changes in our accounting assumptions that may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; changes in the credit ratings of GMAC or GM; the threat of natural calamities; changes in economic conditions, currency exchange rates or political stability in the markets in which we operate; and changes in the existing, or the adoption of new, laws, regulations, policies or other activities of governments, agencies and similar organizations.

Investors are cautioned not to place undue reliance on forward-looking statements. GM undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other such factors that affect the subject of these statements, except where expressly required by law.

Use of the term “loans” describes products associated with direct and indirect lending activities of GMAC’s global operations. The specific products include retail installment sales contracts, loans, lines of credit, leases or other financing products. The term “originate” refers to GMAC’s purchase, acquisition or direct origination of various “loan” products.