Q3 2007 General Motors Corp. Earnings Conference Call on ...online.wsj.com/public/resources/documents/GM-Transcript-2007110… · 07/11/2007 · Nov. 07. 2007 / 9:30AM, GM - Q3 2007

F I N A L T R A N S C R I P T

GM - Q3 2007 General Motors Corp. Earnings Conference Call

Event Date/Time: Nov. 07. 2007 / 9:30AM ET

www.streetevents.com Contact Us

© 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without theprior written consent of Thomson Financial.

http://www.streetevents.comhttp://www010.streetevents.com/contact.asp

C O R P O R A T E P A R T I C I P A N T S

Randy ArickxGeneral Motors Corporation - Executive Director, GM IR and Financial Communications

Fritz HendersonGeneral Motors Corporation - Vice Chairman, CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

John MurphyMerrill Lynch - Analyst

Brian JohnsonLehman Brothers - Analyst

Himanshu PatelJPMorgan - Analyst

Rod LacheDeutsche Bank - Analyst

Jonathan SteinmetzMorgan Stanley - Analyst

P R E S E N T A T I O N

Operator

Ladies and Gentlemen, thank you for standing by. And welcome to the General Motors Corporation third quarter 2007 earningsconference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a aquestion-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded Wednesday, November7th, 2007.

I'd now like to turn the conference over to Mr. Randy Arickx , Executive Director, GM Investor Relations and FinancialCommunications. Please go ahead, sir.

Randy Arickx - General Motors Corporation - Executive Director, GM IR and Financial Communications

Good morning and thank you for joining us, as we review our 2007 third quarter results that we sent to you earlier this morning.I'd like to direct your attention to the legend regarding forward-looking statements and risk factors on the first page of the chartset. Like always, the content of our call will be governed by this language. I should also mention that to comply with the SECRegulation G, we provided some supplemental charts at the end of today's show charts that we'll be speaking to today, in orderto provide reconciling data between managerial financial results as discussed today and the GAAP equivalent results that arein GM's financial statements.

I would also like to highlight GM is broadcasting this call live via the internet, and that the financial press is participating. Thismorning, Fritz Henderson, our Vice Chairman and CFO, will cover our third quarter earnings review. After the presentationportion of the call, 30 minutes will be set aside for questions from security analysts, followed by 30 minutes with the financialpress.

I would also like to mention we have several other executives available to assist in answering your questions. With us today areWalter Borst, Treasurer; Nick Cyprus, Corporate Controller and Chief Accounting Officer; David Meline, CFO of GM North America;and Mike DiGiovanni, Executive Director, Global Market and Industry Analysis.

www.streetevents.com Contact Us 1



Nov. 07. 2007 / 9:30AM, GM - Q3 2007 General Motors Corp. Earnings Conference Call


Now I'll turn the the call over to Fritz Henderson.

Fritz Henderson - General Motors Corporation - Vice Chairman, CFO

Thanks, Randy. Good morning, everyone. Let's turn to page two of the deck. Briefly, on the third quarter -- driven by the deferredtax asset valuation allowance, we had a $39 billion loss in the quarter -- which was pretty much largely explained by the valuationallowance. We'll spend some time talking about this this morning and then also go into what was going on in the rest of thebusiness.

Adjusted profitability was a $1.6 billion loss. Our automotive results on an adjusted basis actually improved $0.6 billion versusthe third quarter of '06. We did have a significant loss in GMAC due -- actually more than due to losses at ResCap related to thechallenging U.S. housing market. Automotive revenue at $43.1 billion were a record for the automotive business in the thirdquarter. Our share, for example, in U.S. stabilized, with share growth of 0.5% in the other regions of the world. But our overallglobal share was down, largely because the markets outside of North America were growing faster than North America. So webasically lose on a regional mix basis. But in terms of our overall market performance, we were encouraged by what we saw inthe third quarter.

And finally, we closed the quarter with $30 billion of growth liquidity, driven by a adjusted operating Op cash flow of 2.5 billionRed -- which I'll talk about later is actually better performance versus the prior year -- but then obviously the proceeds from theAllison sale of $5.4 billion in the quarter.

Page three looks at our results on an adjusted basis. Recall, we look at our adjusted results from a managerial perspective. Wethink it provides -- how we manage the business and it provides useful information for investors. What we have done here --and I'm going to touch on this when I talk about the corporate sector, but the automotive results here are shown in '07 usingthe effective tax rates we established at the beginning of the the year. So we have held the effective tax rates for the automotiveoperations to insure comparability versus the prior year. I'll come back and talk about the changing effective tax rates when Italk about the corporate sector and special charges.

But here in North America -- North America had a $247 million loss on an adjusted basis. So for the Company -- for an operationthe size of North America, a small loss base at the operating at or around breakeven, actually in this case, is the other side ofbreakeven and it's $247 loss. But nonetheless, a $400 million improvement year-over-year in what is normally our weakestseasonal quarter.

GM Europe $90 million loss, also typically our weakest quarter. I'll talk about what the drivers were at GM Europe later. But thatwas $51 million wider than the prior period. GMLAAM, $340 million. This is a spectacular number. It's up $157 million from thethird quarter of '06, which in and of itself is a pretty good number. GMAP $138 million, very solid profitability quarter, up $81million. And then eliminations were $4 million in the quarter.

So, when you move down GMAC, you could see the substantial deterioration year-to-year, $1.3 billion. Corporate sector is down$1.3 billion, again, I'll talk about why later. In disc ops, we reported basically a stub period in '07 for Allison, whereas in '06 in thethird quarter, we had the full quarters results. So when you move down to adjusted -- the adjusted loss for the quarter was $1.6billion versus about $0.5 billion profit in the prior year.

Page four -- the corporate sector. The corporate other and other financing sector deteriorated $1.3 billion versus third quarterof '06, largely due to tax-related items. First of all, in the third quarter of '06, we carried about $0.4 billion dollars at variousfavorable tax items and benefits that were affecting our business around the globe. The current period -- let me move back upa step. What I said was, when we looked at our automotive operations, we chose to hold the effective tax rate for those whichwe established at the beginning of the year so we could look at their performance on a comparable basis. But when we computedthe total adjusted net income, we actually revised our effective tax rate on a cumulative basis through the first nine months in






order to reflect, frankly, the loss of the tax benefit in the U.S, Canada, and Germany. The unfavorable impact associated withthe loss of those tax benefits, in other words, the losses which are no longer tax effected, amounted to $0.7 billion of tax expense,which we chose to carry in the corporate sector for purposes of display and for looking at our results in the quarter.

As we look at both the fourth quarter and calendar year in '08 next year, we obviously need to look at our effective tax rateswith the valuation allowances we've established for the U.S, Canada, and Germany. But in terms of understanding the resultsof operations on a comparable basis, again, we held the automotive results, we held the regional tax rates and then we basicallypulled through the entire impact for 2007 calendar year only. On a cumulative basis, we pulled it through into the third quarterand we put it into the corporate sector, which is why you have a very substantial unfavorable corporate sector in the quarter.Other factors included increased legacy expense related to pension and OPEB for Delphi retirees, for example, the Delphi(inaudible) retirees that came aboard last year drove higher legacy expense -- higher interest expense and some impact ofunfavorable currency, and finally, just some higher expenses. But the key factor here was the tax adjustments. And then we hadsome higher legacy costs.

Page five -- takes you from adjusted net income down to the GAAP loss. You went from an adjusted net loss of $1.6 billion. Andagain, that number did include the reversal of the '07 impact only of the loss of the tax benefits, as I mentioned in the priorchart. Then what you pick up is another $38.6 billion of valuation allowances -- $38.3 billion largely relates to prior years, actually.And then $250 million relates to tax benefits that were applied to special items in the first six months of this year. So what weneed to do, to the extent we had tax effected special items in the first six months of the year, which we had, we needed toreverse out and to establish an evaluation allowance associated with those special items -- so the $250 million related to thetax benefits that had previously been applied to the special items. The total valuation allowance then included in special itemswas $38.6 billion. And when you include the impact that's included in adjusted profitability, that's where you landed about a$39 billion impact of valuation allowances affecting our overall results. In three different pieces, but in total, the impact was$39 billion.

Pension prior service costs -- I'll talk about this -- $1.6 billion in the quarter. I will cover this later, so I'm not going to belabor ithere.

Restructuring related costs in North America and Europe, $420 million in the quarter. We did adjust the Delphi reserve, I havea chart on that as well, by $350 million in the quarter. And we pick up the Allison gain -- and here we actually show Allison netof the tax. We had previously disclosed that what the Allison gain would be -- and candidly, as Allison was discontinued operations,we chose to tax effect it and therefore, the DTA valuation allowance we took was lower as a result of the taxes. We do not payany taxes associated with the Allison sale. But we are showing it here after-tax. Again, the reason why we look at these resultson this basis is we think it's useful for -- first, management to measure and compare operations across periods and we think it'suseful for investors to measure and assess the Company's core performance.

Okay, next here, the charts talk about deferred taxes. This was laid out in our press release yesterday, but I'm going to go throughit again here this morning. Accounting for income taxes is governed by SFAS 109, which provides guidelines for determiningwhich valuation allowances are required against the deferred tax asset. The basis for consideration of all available evidenceuses a 'more likely than not' standard for purposes of determining whether a valuation allowance is required. And in lookingat the evidence, weight is given to both positive and negative evidence, and based on whether -- and frankly, the strength ofthat evidence is based on whether it can be objectively verified. For example, current or previous losses are given more weightthan the future outlook, inasmuch as current or previous losses can be more objectively verified. A three year historical cumulativeloss is considered a significant factor that is difficult to overcome, in the literature. And in accordance with FAS 109 in the thirdquarter, GM evaluated it's DTA's -- actually had it before on a quarterly basis and did again, in the third quarter, determine ifany valuation allowances were required.

Page seven. Allowances were previously not deemed necessary for our DTAs in the U.S, Canada and Germany based on severalfactors. These were -- the factors were laid out in our 2006 Form 10-K. But first, the degree to which the Company's three yearhistorical losses during those periods were attributable to special items and charges, of which several were related to actions






to improve future profitability. And we took that into account as we assessed our DTAs in those prior periods. Second, we hadan expectation of continued strong earnings at GMAC, as we had through 2006, and improved earnings in GM North America.And third, our DTAs and our loss carry-forwards had very long durations, over which they could be utilized.

Recent events that we saw in the third quarter provided evidence whereby we concluded a valuation allowance should beestablished under FAS 109 guidelines. First, we looked at it -- we had a three year historical cumulative loss in the U.S, Canada,and Germany on an adjusted basis. So the basis upon which we were looking at was negative in the third quarter. Second, wesaw in the third quarter results, the ongoing weakness at GMAC relating to our ResCap mortgage business. In other words, wehad very sizeable losses from GMAC which passed through to GM at 49%. Given that GMAC is structured as an LLC, those passthrough to GM -- pass through to our U.S. business, and we saw that in the third quarter -- very sizeable losses. And then finally,as we looked at the near term outlook, and again, I stress near term, the automotive market conditions in the U.S. and Germanyremain challenging. And so based upon these factors, we concluded a deferred tax asset valuation allowance was necessary inthe third quarter.

Page eight. Therefore, non-cash charges of approximately $39 billion in the quarter were recorded against DTAs in the U.S,Canada and Germany. Canada was in a three-year cumulative loss position, but we actually also evaluate Canada on an integratedbasis with the U.S., inasmuch as we run Canada as part of our GMNA operations. And our U.S. and our Canadian operations arebasically run in an integrated way. Once you determined a valuation allowance is required -- the full valuation allowance wastaken, given that upon failing that 'more likely than not' test and being in a three-year cumulative loss position on an adjustedbasis -- no one point estimate is better than another, when measured against an average three year loss. In other words, onceyou're in that position, there's no one point estimate which represents anything better. And so the conclusion in both theoryand in practice is that 100% valuation allowances are established.

Our loss carry-forwards, and frankly, other timing differences still exist and will be used -- and can be and will be used to offsetfuture taxable income. So the establishment of the valuation allowance doesn't change the tax attributes of our business. Anda valuation allowance can be reversed in the future if there's no longer a three-year cumulative loss position and we can pass'the more likely than not' test for future deferred tax asset utilizations. For example, in the third quarter of '06, we reversed aprior valuation allowance for our Korean DTAs after three years of cumulative profitability of our Korean business. In the fourthquarter of '05, we established a full valuation allowance for our Brazilian business as well. Since that time, our Brazilian operationhas turned profitable. We have not reestablished the DTA related to Brazil at this point. But we are benefiting from a lowereffective tax rate. And we'll continue to evaluate Brazil on an ongoing basis to see if that's warranted in the future. It's not aforecast today. But this is something that you continuously monitor each quarter. The establishment of a valuation allowancedoes not reflect any change in the Company's view of its long term automotive financial outlook. But instead, really focuses ona historical test, in terms of determining -- in terms of the weight of evidence that was used to reach this decision.

Page nine. Talk about Germany now and GM Europe. On August 17th, Germany effected legislation to lower the statutorycorporate tax rate, effective 1-1-08. And actually, in our prior disclosures, we talked about what the impact of this would be onour German DTA balance. It was -- it's anticipated that this tax change will result in a reduction of approximately nine percentagepoints in the German corporate tax rate. And due to that lower tax rate, German deferred tax assets and loss carry-forwardsobviously have less future value, as the underlying tax attributes will be offset by future income taxed at lower rates. The valueof the DTA is based on tax rates expected to climb in the years in which they're expected to be recovered. So therefore, evenapart from the valuation allowance, we would have written down our DTAs in Germany, to the extent of this nine percentagepoint reduction in the corporate effective tax rate. But based on our assessment of our operations in Germany, and specificallyagain, we were in a three year cumulative loss basis -- on an adjusted basis, excuse me -- we concluded that a full valuationallowance should be taken against our German DTAs. And a related charge in the third quarter includes, therefore, both thereduction in the value of the German DTA from the tax rate change and the valuation allowance associated with the determinationthat it was not -- we were -- we failed the 'more likely than not' test. Important to note, to the extent the valuation allowancesare reversed in the future, the value of the German DTAs would still be reduced by the same $0.5 billion to reflect the lower taxrate.






Moving out of deferred taxes into pensions -- page 10. We made some changes in pensions in the third quarter. Pensions --specifically, how we reported pension expense. Prior labor agreements generally included both basic monthly pension benefitincreases and pension lump sum payments. Basic benefit increases are --- have been paid from plan assets and have historicallybeen amortized over the average service life of employees as part of pension expense. Lump sums have been paid out ofoperating cash and have historically been expensed upon ratification. The 2007 labor agreement with the UAW granted basicbenefit increases and lump sums. And the Company concluded, as opposed to past practice, that the lump sums would nowbe paid out of plan assets and included in our projected benefit obligation, or PBO.

In looking at this matter, we concluded that the determination -- that the life of the labor contract would be a preferable periodof economic benefit for purposes of amortizing pension benefit increases. So these basic benefit increases and the lump sumsincluded in the new contract will now be amortized over the next four years, and would begin to effect our financials in thefourth quarter. So, just thinking about it conceptually, an average service life for an active employee could be 10 years. Wewould have historically amortized the cost of basic benefit increases over 10 years. And instead what we're doing is -- we'replanning to do is amortize the cost of both basic benefit increases and lump sums over the contract life for four years instead.And as part of adopting this approach, we chose, in the third quarter, to expense the remaining unamortized prior service costsof $1.6 billion that remained from the 1999 and 2003 agreements. And we expensed those in the third quarter. And so this ishow we affected, frankly, prior agreements. And then when we get into the fourth quarter, you'll begin to see the impact ofhow we account for the new agreement. This $1.6 billion would have been expensed over time, as we historically had done,had we not made -- had we not adopted this shift.

Page 11 and 12 deal with Delphi. In July and August, the Delphi reached agreements with all of its remaining unions, patternedlargely on the June UAW agreement. And GM agreed to provide similar support, as we did for the UAW-Delphi agreement,including coverage of OPEB and certain attrition program reimbursements. GM and Delphi -- the GM and Delphi SettlementAgreements were signed in September. And Delphi filed with a bankruptcy court -- and these were filed, excuse me, with thebankruptcy court, as part of Delphi's plan of reorganization. Settlement Agreements resolve all claims by and against Delphiand documents GM's support of Delphi's plan of reorganization.

Delphi subsequently announced it would delay hearings on its Disclosure Statement to provide more time to negotiate exitfinancing due to changes in the credit markets. The parties filed amendments to the plan, Disclosure Statements and theGM-Delphi agreement on October 29th. Delphi announced on November 5th that it would again delay the Disclosure Statementhearing to continue discussions with the statutory committees. Candidly, the Company believed not all conditions for theeffectiveness of its planned investor agreements would be met prior to the scheduled November 8th hearing. And our discussionswith Delphi and with the other parties continue at this point.

Page 12 -- as I mentioned on October 29th, the Company did file potential amendments to its POR and disclosure statementsreflecting a lower level of net debt upon emergence. In -- the document filed included amendments to the Global SettlementAgreement and Master Restructuring Agreements between Delphi and GM, whereby GM agreed to accept an alternativecomposition of its settlement. For example, as compared with $2.7 billion in cash under the September 6th plan of reorganization,under the amended plan and related agreements, GM will receive the following consideration upon Delphi's emergence frombankruptcy; at least $750 million of cash, $750 million of second lien note reduced by the extent of cash received above $750million, and then $1.2 billion of preferred stock convertible into common at $45 a share.

GM recorded in the third quarter a charge of $350 million as a result of the final agreement -- all of these agreements, as wellas the final agreements with the labor union, and reflecting the GM-Delphi Settlement Agreements as amended -- finally, alsoreflective of incremental Delphi retiree healthcare costs. So at this point, including a $350 million charge that we took in thethird quarter, we would have taken a total of approximately $6.9 billion of Delphi related charges through the third quarter. Atthis point, we expect no material change to the ongoing period costs disclosures that we previously provided to investors.

Page 13. Other special items included in the quarter. First the Allison gain on sale -- the transaction did close in August, netproceeds were $5.4 billion. Actually, what we did is we collected $0.2 billion in receivables, around the closing, and so therefore,






the $5.6 billion purchase price that was discussed was adjusted downward to $5.4 billion as a result of the fact that we collectedthe accounts receivable. The gain on sale remained the same, it's $5.3 billion, $3.5 after. And I already mentioned that therewere -- it was subject to adjustments for changes in working capital and debt. And that was one of the reasons why we had thisminor difference versus the $5.6 billion announced.

We also had restructuring related items, $262 million in Europe, related to separation programs offered primarily in Belgium,Germany and Sweden. And $158 million in North America, related primarily to adjustments to the plant closing reserve, as wellas curtailment reserve adjustments related to the special attrition programs offered in 2006.

Page 14. Prior in the -- prior labor agreements, and specifically the current labor agreement, included programs to providepersonal legal services to hourly employees and retirees represented by the UAW, the CAW, and the IUE -- CommunicationWorkers in America. Typically, the annual expense associated with these programs has been approximately $35 million historically,per year, and expensed as paid. Upon completion of the '07 UAW negotiations, and a review of the accounting for all provisionsof the contract, the Company determined that the retiree portion of these programs should be accounted for instead aspost-retirement defined benefits, as opposed to PAYGO. Benefits paid to active employees will continue to be accounted foras period costs on a pay-as-you-go basis, or PAYGO, with additional accruals for defined benefit accounting as they accrueretirement benefits. But we did conclude that we felt that we should change our accounting for the retiree portion of theseplans.

As a result of this, an immaterial adjustment of $211 million -- which I'll talk about how that was determined in a moment -- waseffected in GM's financial statements through a restatement of shareholders equity as of 1-1-2006, in the quarter. And in fact,what we'll do, as we file our K, is we'll go back to the very first period beginning retained earnings and adjust that number, aswe make our filings going into the calendar year, to reflect the impact of this change in accounting for legal services, basically,a prior period adjustment. That $211 million is comprised of the $323 million liability, offset by $112 million tax benefit. Andthe tax benefit, obviously, is then rolled into the valuation allowance in later periods. Again, this immaterial adjustment isbasically effected through a change in beginning balance of retained earnings. When we looked at the impact of this program,it was considered to be immaterial in all prior periods between accounting for it on a PAYGO basis, which is how we historicallyrecorded it, or versus the expense if we had accounted for it at OPEB. So we looked at the degree to which this might haveaffected profits or cash flows in every quarter and in every year previously.And the conclusion was that it was immaterial in allperiods prior to the third quarter. And therefore, no change has been reported to our profit and loss or to our cash flow statements.And again , we will effect this change via prior period adjustments that will affect the beginning balance of retained earningson the balance sheet. I will also note that the impact of this is also immaterial to the balance sheet.

Okay, Page 15 -- coming back to the automotive business, North America. If you looked at what happened in the quarter --again, I want to reinforce that we've held our effective tax rates and we've looked at the adjusted profitability for each of theregions. You can see North America revenues basically flat year-over-year in the third quarter, were down $181 million. Youcould see a significant improvement in pre-tax profitability, $624 million. After-tax profitability, $413 million. You see the netmargin at 0.9% was -- shows you how close we are to breakeven at this point . And you see the income from discontinuedoperations. So in effect, profitability in the quarter improved significantly year-to-year. On the other hand, we ran in the red.And so therefore, obviously, the results are just not acceptable. And even if we had turned to the right side of zero, it's stillcertainly not adequate for what the business should earn.

Our production volumes were down 30,000 units. Our market share -- this is North America, with 24.3%. You can see -- it wasdown 0.2% but you can look down below to the U.S. -- our market share in the U.S. 25.1% -- flat for the quarter. The U.S. SAARat 16 million units in the quarter, down 1.1 million units. So in the quarter we saw, I think, the impact on the consumer. Not aterrible number, but frankly, certainly a number well below trend. And it affected us as well as number of other manufacturers.Our fleet mix in the quarter actually was up 3.8 points. But if you look at us year-to-date, we're down 0.5%. And frankly, at the27.8%, we are getting ourself in alignment or equilibrium, if you will, between retail share, as well -- in our fleet mix. And finally,our dealer inventory at 896,000 units was down 107,000 units. So we feel pretty good about where our inventories are landing,as we completed the quarter.






looks at vehicle revenue per unit. In the third quarter -- I might add, by the way, you could see at the bottom of thischart, this is a non-GAAP measure. Vehicle revenues here are excluding items such as daily rental, accounting impacts, serviceparts, OnStar, other outside sales, to try to give you some idea of what's happening with vehicle revenues. In the third quarter,our number was $21, 605, significant improvement from the third quarter of '06. But also, frankly, a continuation of what wesaw in the first and the second quarter, where we've had richening mix, largely model option mix, as well as some price drivingbetter revenues per unit in our North American business.

Page 17 takes a look at the variance analysis for North America profitability, both in the third quarter as well as calendaryear-to-date. In the third quarter, volume was actually unfavorable $0.2 billion, mix favorable $0.3 billion, price and materialnet was $0.2 billion, policy warranty campaigns was $0.3 billion. There are two things going on there. One, last year, we hadthe retroactive effect of our revised warranty -- powertrain warranty that adversely affected the third quarter last year. And thenin the third quarter this year, we had recoveries from Delphi, actually in -- warranty recoveries from Delphi which were a littleless than $200 million in the quarter. So the net effect of those two resulted in better policy warranty and campaign expenseby $0.3 billion.

Pension, healthcare manufacturing, basically $0.1 billion. Once you get to the third quarter, to year-over-year comparisons; wehad, by the third quarter of last year, run a substantial amount of costs out of our cost structure. When you look at the year-to-date,we are $2.3 billion -- calendar year-to-date -- favorable on this measure. But in the third quarter it was favorable, but only by$0.1 billion.

And then finally, engineering exchange, other was $0.2 billion. And a host of items going on in that category, none of whichare bigger than $100 million. But one thing that did affect us that is in there is the impact of exchange of C dollar to U.S. dollar.But think are a whole host of other factors; there's the Delphi costs in there, there are engineering costs in there, favorableproduct liability reserve adjustment in the prior period. A whole host of things, but none of them are more than $0.1 billion.

Overview of the regions. I'm not going to spend a lot of time on this chart, inasmuch as I have charts on each individual operation.But a couple general points. First, year-to-date through the third quarter, 58% of our unit sales were outside the U.S. About 36%of our automotive revenues were generated from outside of North America. It shows you still how obviously important ourNorth American business is to us from a revenue and profitability perspective.

We had record third quarter volume in every region -- in the other regions of the world, fueled by share growth of 0.5% outsideof North America. These contributed to year-to-date global share gains of 0.2%. And our revenues were up 28%, with significantgains in every region.

GME volume was up 15%, as we leveraged our position in Eastern Europe, particularly Russia, and gained share in most keyWestern European Markets. GMLAAM, volume was up 22%, outpacing what was otherwise a very strong industry, and almostdoubling our debt to profitability. And then GMAP volumes were up 16%. And adjusted net income more than doubled, withstrong results in China, Korea , India and some improved performance, actually, in Australia.

Moving to Europe -- page 19. You see the impact of revenues in Europe, up $1.278 billion. Let me stop and point out that thebusiness that we do in Russia is not exclusively done for GM-Daewoo but it's substantially done through GM-Daewoo. Andinasmuch as GM-Daewoo -- we have 51% the business, we consolidate it, but nonetheless we have obviously 49% majorityshareholders -- we largely reflect the results of our Russian business in our Asia Pacific operations. So while you'll see the volumesin Europe, you generally see the revenues and the P&L affect associated with that, by and large concentrated in GMA Pacific.You see -- but nonetheless, quite apart from that, you do see a sizeable increase in revenue in the quarter, in part driven byvolumes and in part driven by a strong Euro. Pre-tax losses were wider by $70 million. Net income -- the net loss was wider by$51 million. Net margin, 1% loss.

As we look at our European business in the quarter -- in general, third quarter is tough in Europe. But I'd say, certainly relativeto the third quarter of '06, a mild disappointment. It was not something that we would consider to be acceptable. We have






made good progress in Europe, calendar year-to-date. We've been okay. But I would say the third quarter was a tough quarterfor GM Europe. Certainly, from a profitability perspective, we continue to grow the business and grow share , but we weren'tsatisfied with our financial results.

If you looked at some of the key countries, you see Germany here, loss as an industry. And that frankly understates the weaknessof the German industry. You've got higher fleet sales and deliveries in Germany. And actually, the retail market in Germany isoff substantially. UK holding in there relatively strong. Our share up by almost -- by 1.6 points in the UK. And then you see Russia.Industry in Russia 2.8 billion -- 2.8 million, excuse me -- units, up 40% from the prior year. Our share at a little over 9% so we'reup about 2 points.

GMLAAM -- revenues almost $5 billion, pre-tax profits $375, net income $340. And the net margin almost 7% in Latin America,after Middle East. Just a very good quarter for GMLAAM. Production volumes up substantially, industry up substantially. Ourshare up substantially at 0.4%, so we're growing faster than an otherwise very fast growing market. The biggest single marketin LAAM remains Brazil. You can see the Brazilian market up 30% on a SAR basis. And our share, down 0.2%. We're frankly pleasedwith how the Brazilian market is moving.

Page 21 -- GMA Pacific. Continued strong growth in Asia Pacific, $1.6 billion increase in revenues. Pre-tax profitability swingingto the positive and improving by $180 million. You see the improvement in our China JV equity income. You do see moreminority interest -- more of an impact of minority interest in the third quarter of '07, driven by better profitability in Korea andGM-Daewoo. So we have better profitability in Korea, we have more minority interest reported in our Asia Pacific operations.You see the net income has improved $81 million, net margin improved by 1 point.

Looking down at some of the key markets -- again, very strong growth in Asia. Our share up 0.3% overall. The China marketgrowing just still at a very fast pace. The SAAR in China in the third quarter, 8.7 million units. Our share down 0.7% in China, inpart reflecting -- not been able to keep up with growth in some key areas, but also a lot of the growth has been in some of thevery low or entry level segments where we're not as strongly positioned competitively. So our share off -- our share off a bitversus the third quarter of '06. But nonetheless, at 11.3%, we feel pretty good about how we're doing in our business in Chinawith our partners. Australia -- you see a continued strong industry actually in Australia. The Australian market has been goingthrough a pretty significant transformation and our job is to basically right size our cost structuring in Australia to deal withwhat is a different mix of sales. And what's what we have been focusing our attention on. Finally, fully built-up units in Korea,193,000 units up. It doesn't include our CKV business in Korea, which is also a substantial piece of business -- or kits I should say,excuse me.

GMAC -- GMAC reported a $1.6 billion net loss in the quarter, due -- actually more than due to ResCap -- it's the global dislocationin the mortgage and credit markets. ResCap's total net loss was $2.3 billion, including $455 million impairment of -- substantiallyall of it's goodwill -- the goodwill that was attributable to ResCap. Non ResCap businesses continue to perform well. I'll talkabout each individual segments in the next chart. The GM reported an adjusted net loss of $757 million, that included our 49%of the net loss, partially offset by a preferred dividend. And this was versus, certainly, the third quarter of '06, a significantdeterioration of $1.3 billion. In the third quarter of '06, we fully consolidated GMAC and GMAC was profitable. In the third quarterof '07, we picked up 49% of GMAC, when GMAC was unprofitable.

Page 23 looks at the individual lines of business. You can see automotive finance up substantially, actually. So good to seewidening margins and improved results in Global Auto Finance. Insurance, while down year-to-year, at $117 million, that's agood performance. And in the prior year, we did have some capital gains in the insurance business. So the operating trends inthe insurance business are positive. GMAC's other businesses, Commercial Finance and its equity interest in CapMark wasfavorable year-to-year. So operating income, exclusive of ResCap, was up $226 million or right around 50%. ResCap, however,you can see the wide losses, $108.9 billion -- a swing at the ResCap level. And you can see in the third quarter of '07, $455 millionof goodwill impairment. In the third quarter of '06, GMAC reported goodwill impairment associated with the Commercial Financebusiness.






- shifting to liquidity. We closed the quarter with a strong growth liquidity position of $30 billion. It reflects an increaseof $2.8 billion versus the second quarter of '07, which is more than explained by the net proceeds from the sale of Allison. Ourgross liquidity that we're measuring here includes $3.6 billion of readily-available VEBA assets, i.e. our short-term VEBA. $2.6 --an estimated $2.6 billion of this amount in short-term VEBA will be excluded as we move into year-end '07, due to the recentGM UAW independent VEBA trust settlement. In other words, this amount is readily available as of September 30th, '07, but asof December 31, '07, we will no longer include it as readily available.

Page 25 looks at both gross liquidity as well as net liquidity. With the improvement as a result of the Allison sale, you can seethe reduction in net debt from $12.1 billion at the end of the second quarter of '07, to $9.9 billion at the end of the third quarterof '07. And over this time period -- this will be the first time that our net debt position fell below $10 billion.

Page 26 -- moving into cash flow drivers. We did have an adjusted operating cash flow of a negative $2.5 billion in the quarter,driven by scheduled production shutdown in July. This was $1.4 billion improvement from the $3.9 billion of negative cash --operating cash flow reported in the third quarter of '06 -- I'll talk about why in a subsequent chart. And then year-to-date, ouradjusted automotive operating cash flow is an outflow of $1.1 billion, which is an improvement of $3.6 billion relative to thefirst nine months of 2006, with operating cash flow improvements achieved at all four GM regions.

Page 27. I'm going to focus my attention here on the third quarter of '07. You can see the substantial loss due to reported -- atthe reported net income line and then you see the substantial add back in accrued expenses and other as a result of the factthat the valuation allowance is a non-cash charge. And so you can see that adjusted operating cash flow actually comes out atnegative $2.5. I'll talk about what's happening in working capital in at a later chart. But you can see the change year-to-year.Below the adjusted operating cash flow line, frankly, not much going on in the quarter. You had the sale of Allison and thenyou had some small moves in some of the other categories. But not really much going on in that regard.

Page 28 looks at both working capital as well as accrued expenses and other to try to give some sense of what's going on inthese line items. In the third quarter of '07, working capital is a $1.1 billion use of cash. And if you looked at it versus the thirdquarter of '06, really the only difference is -- in third quarter of '06, we had some acceleration of accounts receivable collections.In the third quarter of '07, we frankly were flat. So, the changes that you saw in inventory and accounts payable were prettycomparable year-over-year in working capital. So the change in working capital is driven by, frankly, the timing of collectionsof accounts receivables.

And then looking at accrued expenses and other -- looking down, you see not much change in terms of net interest accrual.What you see -- you saw in the quarter is $0.6 billion use of funds. As we continue to reduce our sales to fleets, we do continueto pay back more customer deposits than we take. So therefore, we have a $0.6 billion use of funds.

Moving down to non-cash charges and other of $1.1 billion. What you see in that number in the quarter, you see the impact ofthe Delphi charge, which was non-cash, you see some of the charges -- some of the restructuring charges that were taken inboth North America and GM Europe are also non-cash. So the $1.1 billion is almost entirely comprised of the special items thatwe outline -- that are restructuring related in the quarter that were, by and large in the quarter, non-cash.

Page 29 -- looking at the outlook in the fourth quarter. We see ongoing revenue growth and strength in the emerging markets.We do have concerns over near term U.S. economic conditions. The market, as I said, ran at a $16 million pace in the U.S. in thethird quarter. Not a terrible number but certainly well below trend. And while we're pleased with our share performance ofrecent -- during recent months, excuse me, the overall pace of economic activity and primary demand in the U.S. market iscertainly below our expectations, and it's something we need to be cognizant of. We do see the full benefit, for example, though,moving into the fourth quarter, of some very important product launches with our CTS as well as our Malibu sedan. Both veryimportant for us, in terms of reestablishing brand and market momentum.

You'll also see in the fourth quarter some further financial impact of the GM UAW labor agreement, including pension expense,active employee lump sum -- amongst other items. In looking ahead, we do expect to continue to leverage our strong position






in emerging markets to maintain strong overall global growth. And then we're going to work -- continue to work with the UAWto begin the process of transforming the workforce to improve the cost impediment of our North American businesses.

So on page 30, to summarize and close here; large loss in the quarter on a GAAP basis driven by the valuation allowanceestablished for deferred tax assets. But even apart from that, we still had a $1.6 billion loss at the adjusted net income level --but also, a large part of that was also driven by tax-related adjustments. Automotive operations delivered improved, but clearly,still not satisfactory results. Very strong global volume and revenue growth we saw in the quarter. We saw strong growth in netincome results in Asia Pacific and LAAM. I mentioned GME results being somewhat disappointing. And North America, whiledelivering improved results, we're still in a loss position. GMAC results were poor, more than explained by the significant lossesat ResCap. And finally, we did make some progress at Delphi. And we did close the quarter with improved automotive liquidityof about $30 billion.

Thank you for your time. At this point, we'll take questions.

Q U E S T I O N S A N D A N S W E R S

Operator

Thank you. Ladies and gentlemen, we will now proceed with the analyst portion of the question-and-answer session. (OPERATORINSTRUCTIONS)

Our first question comes from the line of John Murphy from Merrill Lynch. Please proceed.

John Murphy - Merrill Lynch - Analyst

Good morning, Fritz.


Hi, John.


Just a quick technical question, first, on the DTA tax allowance -- the tax allowances here. If you look at the technical measurementfor this on a trailing basis, and we step forward, what are the ceilings on -- or what is the ceiling on future earnings? I mean,you've had some pretty big losses in 2005, so I would imagine the technical ceiling on earnings going forward, based on this12 quarter measurement, is pretty high, going forward. Is that correct?


You say -- did you say ceiling or feeling?


Ceiling.







Oh, okay. Well, clearly, if you do a 12 month -- 12 quarter trailing average, the inclusion of '05 in any 12 quarter trailing averageis a significant drag. But I'm not sure I got your question. So why don't you try again?


So meaning that there is -- even if you had some massive improvement in pre-tax income in the U.S. next year, there is the verygood chance that this DTA allowance would not be reversed?


Yes. In order for us reverse the DTA allowance -- let me see if I can't touch on this directly -- we would need to see three-yearcumulative historical loss -- losses turn into three-year historical cumulative profit. So that's the very first thing we would wantto see. The second thing you'd want to see is you'd want to see some expectation of continued strong results. You'd want tohave some expectation of continued favorable results before you would consider removing the valuation allowance.


Okay, so in the interim, we'd look at a tax rate in North America of 0%. And that corporate other line would return to morenormal level? Is that a correct assumption?


Yes, what we did here in the quarter -- and candidly, we need to consider how we want to handle the fourth quarter. So I wouldsay, stay tuned. But what we did here in this quarter is we held the tax rates in the automotive businesses constant so that wecould provide some measure of comparability year-over-year. We put the cumulative effect from '07 results in the corporatesector. But over time, we would expect to basically move that into the individual automotive sector and then disclose that toyou. And North America -- I mean there will be some taxes in Mexico, but by and large, North America will be very close to a 0%rate.


Okay. And then switching gears real quick to GMAC and the troubles at ResCap. It does sound like there's potential for a needor maybe a desire from Cerberus to commit more capital to ResCap, but given that business is ring-fenced and any mishaps atResCap wouldn't necessarily directly impact the auto financing business; what's your resolve in potentially committing morecapital to GMAC and ResCap, specifically, outside of GMAC -- really from your balance sheet directly?


Well, a couple things. First, reflecting back on the GMAC earnings release last week -- GMAC itself actually did make an equityinjection into ResCap during the third quarter. What the shareholders did -- we actually disclosed this in GMAC's earnings resultsas well -- subsequent to the close but prior to the release, shareholders agreed to capitalize a portion of the preferred that wasoutstanding. In other words, we and Cerberus agreed to capitalize a -- pro-rate a portion of our preferred stock into GMAC. Wehave not made nor do we plan to make any injections directly into ResCap, obviously. We're a shareholder of GMAC. And so far,our approach has been, with Cerberus, to capitalize a portion of our preferred. And then we obviously have an interest in makingsure that GMAC stays well-capitalized and it continued to do a good job supporting the sale of GM cars and trucks. But I would






say GMAC was taking the right measured approach to how we want to handle capitalization to ResCap. And in terms ofshareholders at GMAC from the GM perspective, the way we look at it -- we certainly felt, with Cerberus, that the capitalizationof the preferred was the right action for us to take at this point.


Do you envision a point in time where Cerberus may want to commit more capital to help ResCap out? And you may not -- andyou could get taken out of that equity stake at ResCap, specifically?


Hypothetical question, which at this point, I don't think I can answer, actually. So I'd just prefer to defer that for a different day,if and when the subject comes up.


Okay. And then just lastly, on the changeover of some of the products -- on the Malibu; what do you think the incremental[bearable] profit is there, switching from the old product to the new product, just generally? And maybe just the LAAM to CUVsversus the 360, 370s, on that same topic?


Well, let me first talk about the cross-overs, the Enclave, the Acadia and the Outlook, relative to the Trailblazer and Envoy.Actually, earlier -- maybe it was last year or earlier this year I was asked this question. And what I said then is true today -- is thatthe profitability of those vehicles is better than, let's say, the mid-utilities, the rate at which has been running recently, butcertainly not as robust as the profitability that we have in our full size sport utilities. But nonetheless, we've been pleased withthe market's performance. And these have been important contributors to both share performance, as well as improved financialresults in North America. In terms of the new Malibu, not going to really go into the profit of this car versus the profit of theprior car. But I would say on this one, we're very encouraged by early market acceptance and we actually think we can do a fairamount more volume with this car than the prior car, at retail.


Okay, thank you very much.


You're welcome.

Operator

And our next question comes from the line of Brian Johnson with Lehman Brothers. Please proceed.

Brian Johnson - Lehman Brothers - Analyst








Hi, Brian.


I'd like to focus on Europe as opposed to the housekeeping details on the accounting. Can you give us a sense of where youthink the European turnaround really is? I'd actually been hopeful for some more profits in Europe this quarter. And is thebusiness configured -- how much of what we saw was a weakness in the market versus a weakness in your positioning? Andeven if it was a weakness in the market, given BMW different business, 540 basis points this quarter; what's it going to take toget a Europe that can produce 2% to 3% operating profits, even in a flattish environment?


Well, a couple things. Impacting the quarter -- I would say a lot of positive things have happened to our European business todate. But two things I would point to in the quarter, which have been tough for us to deal with. One, a very weak German retailmarket -- and Germany is historically the largest single market in the EU. Second, it has historically been one of the most profitablemarkets in Europe, inasmuch as it tends to sell a richer mix of vehicles. And so therefore, both its contraction and then it's evenmore severe contraction in retail is weighed pretty heavily on us, to be honest. And the second thing is, is that while we've beenvery, very pleased with the reception to our new Corsa, what we've seen is some adverse product mix. What we've seen is Corsagrowing. And we've seen -- I wouldn't say weakness in Zafira, but we've sold, on a relative basis, more Corsas than we haveZafiras. So therefore -- certainly per unit, that's not a particularly good trade from a profit perspective. We would actually preferto be selling more of both. I would say those two factors, as I looked at Europe, combined with pretty continued challenges atSaab, are what really impacts us. And in Saab, a couple things. One, we just are in a difficult period from a product launchperspective. We got a lot of product coming but we do not have a lot of new products in the market today. Second, shippingproducts from Sweden to the U.S. -- and you still have about 30% of Saab's business that's in the U.S. --- is very tough sweating,given both the Kroner and the Euro versus the Dollar.

Last point I'd make Europe that has been weighing on us is FX, even intra-Europe. So we've had the impact of, let's say Euro/Pound,Euro/Turkish Lyra and Euro versus some of the Eastern currency countries and the Rubel, which has been a drag on margins.Because most of our manufacturing is actually in the Euro denominated countries and our sales have been -- our sales growth,particularly, have been in these other countries. Both factors have all weighed down on GM Europe's profitability. We've hit allof our cost targets. We've actually performed better in the market. I mentioned before that the profitability from Russia wouldlargely be earned in Asia Pacific. But all of these are reasons -- but we're still -- we're just not happy with our overall performance.And we understand why, but obviously we need to do -- we need to get -- do a better job.


Does this imply restructuring is needed at Saab? Or are you saying it is a product cycle issue?


The Saab issue is in part product cycle. And over time, I think not only product cycle, I think we need to get -- and here it's notreally a Saab issue, but more of a corporate issue -- we need to get a bit more in balanced in foreign exchange. We need to findmore flows that go from U.S.-based currencies back into Euro to give us a bit more of a hedge, naturally.







And are there opportunities to expand Daewoo further into Europe -- Eastern Europe?


There are great opportunities to expand GM-Daewoo through Eastern Europe. We have, for example, moved into Uzbekistan,we've grown in Ukraine, we've grown very fast in Russia. And in fact, the engine for a lot of the growth -- not exclusively by theway, we've done a huge amount of Opel volume into Russia as well -- but the driver of growth has really been the GM-Daewooproduct.


Okay. And just accounting-wise, we see that in Asia Pacific revenue and profits?


Yes, you'll typically see it -- the profit impact of the Chevrolet sales will be entirely in Asia Pacific.


Okay, thanks.


Thank you.

Operator

Our next question comes from the line of Himanshu Patel from JPMorgan. Please proceed.

Himanshu Patel - JPMorgan - Analyst

Hi, good morning, guys.


Hi, Himanshu.


A couple questions on the accounting here. On the pensions -- I think you mentioned that the pension basic benefit increasepreviously was amortized over about 10 years, the lump sums were expensed. And it sounds like now, both of them are goingto be amortized over four years. Just some rough, back of the envelope math; does that roughly sort of $700, $800 million peranum incremental expense that you may recognize now?







I'll answer that question, Himanshu, when we get to the fourth quarter. But I also -- one thing you have to take into account isthe fact that we've expensed the '99 and the '03 contract in the third quarter, so that will no longer be expensed over that period.So we really did three things. One, rather than doing lumps up front, we will spread those over four years. Two, instead of doingbasic benefit increases over 10 years, we'll go four years. And three, we take the '99 and the '03 remaining prior service costsand expense it in the third quarter.


I see -- so that's an offset.


Correct.


That is correct, okay. Going back to the DTAs -- so if you were to, let's say, become profitable, at least on an earnings basis insome future period after, let's say, all of the UAW contract savings were recognized, it sounds like you would not be a tax payer,at least in the first couple of years -- on the assumption that '07, '08 and '09 would still be a loss position in 2000 -- in the U.S, Isthat a fair characterization?


If you look at -- well, it obviously depends on the extent to which our pre-tax profits grow, but let me step aside from that,because I'm not going to forecast profitability today. If you look at the components of our DTAs, our annual report had them,our actual NOL is actually very large. And so we would not anticipate actually being a cash tax payer for quite some time. Andthen once you've exhausted that, then you've got timing differences you got to deal with. But first things first, we had somepretty substantial loss carry-forwards in the U.S., but also -- not just the U.S, in Germany and Canada.


Okay. And then you mentioned that the third quarter results, when you showed adjusted net income for the automotive divisionin the individual regions, you had held the previous managerial tax rate. And you've kind of reconciled that in corporate/other.


Correct.


What did you do for GMAC's contribution, in terms of tax treatment? Because I think when the earnings flow from the LLC toGM, I think there is a tax impact, right -- on at least the auto and ResCap portion of the GMAC earnings?







All in the corporate sector.


All captured in corporate/other. Okay. And then lastly, the -- just the change in accounting treatment on how you look at thelegal service expense, on how you treat the lump sums -- a lot of this doesn't sound like -- I mean, I'm wondering what triggeredyou guys to change this now? It sounds like you've taken a more conservative accounting approach to this. Is there somethingthat came up in some of the reviews that you guys were doing on the accounting front over the last couple of years that sortof prompted this change? Or was it just the treatment of these items in the new UAW contract that forced that change?


Well, let me just kind of take them one at a time. First on pensions -- we took a look at our pensions, and frankly, we looked ata past history. We've done it correctly, so we're not concerned about our prior accounting. But we just thought it would bepreferable to expense the benefits that were negotiated in any given contract over the life of that contract. That's why we chosethe approach. And that was just frankly something that is -- as we went into the '07 contract, we finished it, we did a review ofit and our collective judgment -- my judgment, my Controllers, Chief Accounting Officers, and frankly, with support of ourauditors, we concluded that than rather having lump sums in one period, 10 year life, and then we come back and we haveprior service costs, we just felt that the preferable approach would be to expense it over the life of the contract, because wenegotiate these benefits over the contract. Then, on legal services, as we looked at it, frankly, you might imagine at $30 millionto $35 million per year, it doesn't necessarily come up on the radar screen all the time. And when we looked at all of theagreements that were in the 2007 labor agreement, whether it's what we need to do with the VEBA, how we want to handlepensions, where we're going with OPEB, all of these other things -- we looked at everything. We took an opportunity to look atevery single provision of the contract to make sure that we were confident and comfortable with how we're handling it. As welooked at this -- and as I said, it's an immaterial adjustment -- but we frankly thought that the more correct accounting was totake the retiree portion of it and handle it as OPEB. This is something -- this is a benefit that is equally available to actives orretirees, actually. And frankly, you don't really determine who uses it. It's equally available to anybody. So if it wound up that90% of the people using it were actives, we wouldn't be having this discussion. But as we looked at the facts, we looked at it inabout -- a big piece of the services were used by retirees. And our conclusion was, this is more appropriately accounted for atOPEB. And when we looked at its materiality, we chose to handle it this way.


Okay. And then last question. Can you talk a little bit about the tax implications, of both cash and GAAP, of the VEBA deal?Because, I mean, there's the sort of practical implementation of it, where there's a large contributions made over the next twoyears. But then it sounds like, from an accounting perspective, you're using the smoothing mechanism with negative planamendment accounting. I'm wondering, how does that impact the taxes going forward?


Well, as long as we're in a three-year cumulative loss position, we'll just be reporting our results almost, in effect, on a pre-taxbasis. So you really wouldn't have any effect. Once you determine that you were in a three-year cumulative profit position, ifwe actually got to the point where we reestablished the DTA, then we would be tax effecting that and likely with any elementof our earnings for our North American business. So I wouldn't say that there's any special treatment that would be accordedthe labor agreement or the VEBA deal. I think it would just basically go into the pre-tax number.







Just to be clear, when you measure whether you are not -- whether or not you're in a cumulative three-year profit, are youincluding in there the benefit of the amortization of the negative plan amendment? Is that captured as part of profit? I know itis captured as part of GAAP profit. I just want to make sure the same treatment here.


The negative plan amendment we have from the '05 healthcare deal has been included in our measurements to date. We havenot included any negative plan amendment from our '07 healthcare deal because that doesn't really kick in until 2010.


Okay. And maybe one last one, if I could sneak it in. Any directional thoughts on mix in North America, how we should thinkabout that? It's been holding up pretty well in '07 -- but as we look out into '08?


Well, we've had this year -- last year -- if I think about '06, we were heavily impacted by model option mix for things like ourfull-size utilities. This year we've benefited pretty significantly in North America from the richer mix on our new full-size pick-ups,as well as the Acadia, Outlook, Enclave. As I look into next year, therefore, all of that would have already been baked in. And sowhat we'll have is things like the new CTS, things like the new Malibu. But this is pure guesswork, obviously, the market willdetermine what our mix is. But I think we've seen -- you wouldn't expect to see the same kind of substantial move on mix in'08 that you've seen in prior periods, because what you've seen in '06 and '07 is largely driven by these major launches of veryhigh-volume vehicles, and we don't necessarily have that replicated next year. But stepping back to the question of the mix,we think that we'll be able to hold what we've done. We have been quite pleased with the results to date and we don't see,necessarily, any reason why we should slip.


Okay, thank you.


You're welcome.

Operator

Ladies and gentlemen, at this point, we would like to urge members of the media to queue up for questions. (OPERATORINSTRUCTIONS) Our next question at this time comes from the line of Rod Lache from Deutsche Bank. Please proceed.

Rod Lache - Deutsche Bank - Analyst








Hi, Rod.


Your comments in the presentation about conditions being more challenging in the U.S,, are you signaling that your outlookis worse than what you're seeing currently? Or can you just elaborate on that a little bit?


Well, actually, I guess what I'll say is is it's pretty much -- we've seen 16-1 -- for example, in October, the market has run rightaround 16-1, 16-2, 16-0. We candidly think that will continue. So I wouldn't say we're signaling significant weakness from whereit's been. I'm just saying, today it's certainly well below trend.


Okay, got it. And can you just give us a little bit of help on the other income level, excluding these tax adjustments, which Iguess you haven't finalized how you're going to treat that -- but just adjusting for the pension and lump sums, these adjustmentsthat you're making, what would you estimate the ongoing level to be in there?


Well, I was actually planning to go -- not planning to go through that today. I was going to go through that when I got into thefourth quarter when we've done all of our remeasurements. So if you'd permit me, I want to hold off on answering that questionfor -- at least a little while.


Okay. Let me then ask you, on the North American price and material being a positive, can you just give us a sense of how thatlooks, price versus material? And what's your outlook for material as you go out to '08?


Yes. Let me, I'll give you my outlook for material when we go through our '08 results -- typically in January is when we wouldprovide that. But if I look at -- I'm just trying to get to it here for a second -- material was slightly unfavorable. So the entireamount of that price material was priced favorable. Material was slightly unfavorable. And largely driven by a continuation ofwhat we've seen; anything that's a metal, so whether it's steel, precious metal, nonferrous metals -- the level of inflation we'veseen in those commodities has been horrific. Now the question is where do they go in '08? If I knew that, I'd be trading them.


Okay, just let me get one last one in here. Just broadly speaking, some of the thinking behind the sale of GMAC and ResCapwas to improve the borrowing costs, and obviously that hasn't happened, at least at this point. Is there any thought being givenby GM to changing that structure in anyway at this point? Or are you basically sort of at the mercy of the markets and waitingfor this mortgage situation to settle out?







Well, let me speak to one at a time. First, in terms of lower borrowing costs, we have seen it in the auto finance business, actually.And the reason you've seen substantial improvement in automotive finance profitability has been the margin expansion notvolume driven -- margin expansion driven by lower borrowing costs. GMAC's rating, for example, is five ratings higher than GM.It's been volatile, obviously impacted in part by mortgages. But in general, we've achieved our goals, in terms of automotivefinance and better margins in that regard. But as I said, it's been a bit of a volatile ride.

Now we don't have any -- I think you said is there any -- are we thinking about any change in structure? The simple answer tothat is no. We think that -- what we foresaw, in terms of the benefits of the deal, in terms of improved GMAC access to funds,cost competitiveness -- we're actually seeing in the automotive business -- what we obviously didn't foresee is what was goingto happen in the mortgage business. And I guess it depends on your benchmark, but had we not done the deal, our costs wouldbe a lot worse than they are today.


Okay, thank you.


Thank you.

Operator

Our next question comes from the line of Jonathan Steinmetz from Morgan Stanley. Please proceed.

Jonathan Steinmetz - Morgan Stanley - Analyst

Thanks, good morning.


Hi, Jonathan.


Hi. Just to follow-up on the North American profit walk on page 17 -- if you could talk about a little deeper on mix, it was $300million net favorable in the quarter, but it ran 1-1 in the first half of the year. And I would think, with the full pick-ups and theAcadia and all that stuff, it wouldn't be decelerating. So can you talk on that year-on-year, what the bad guys were, so to speak?


Let me see. It's interesting. Since I looked at the third quarter -- what you did see in the third quarter is you saw the full array ofour pick-ups hitting the market. So earlier in the year, our mix -- excuse me, our pick-up mix was especially rich. And then whatyou got out as you got out to the third quarter is you saw -- certainly much more traditional, you had more work trucks versus






crew cabs. I think you had -- what you saw -- you said a slowdown, I think it's right. Your rate of improvement certainly slowed.It driven by a much more normal mix of distribution of full-size pick-ups than what we saw in the first half.


And were the large SUVs showing any kind of fading as they aged in life?


Actually, our penetration of the segment, I think, last month hit 77% -- 80%, sorry, I'm wrong. So, we like our position, the issueis the segment itself is obviously been under pressure. And it is what it is. But in terms of our product competitiveness, wehaven't lost a beat.


Okay. And staying on that slide, on the policy and warranty, I think you mentioned in the $200 million favorable related toDelphi, what was the pre-tax amount? And is there anything left to bleed out there? Or is that sort of a one off?


It's actually a little less than that, it rounded to that, but it was a little less than that. That was largely the result of a number ofitems that were included in the comprehensive settlement. We also had -- last year we had this $100 million unfavorable effectin the third quarter of last year associated with the move to the new powertrain warranty, which didn't repeat itself. And thosetwo factors pretty much explained the variance on policy and warranty in the third quarter.


Okay. And finally, on LAAM -- you're running at a 7.6% pre-tax. Can you give a little bit more color on sort of -- was there anythingunusual in the Middle East, as perhaps unsustainably propping that up? Or just -- you're very familiar with the region. Is that amargin level that you think can be sustained over the next two or three years? Or are you leery of saying that?


It's interesting -- I am very familiar with the region. I love the place. But three years ago, we're making this presentation andLAAM was challenged. I think what's happening in LAAM is -- you see a couple things. One, if you kind of go back to the growthin China and the global growth in economies, particularly in China, it's really pulled a lot of commodity-based economies forward.So you've seen countries like Argentina continue to improve. Brazil, while it has done a very good fiscally managing its economy,has also begun to see significant growth, in part, driven by China. So many of the commodity-related countries -- South Africa,although they're recently constricted credit. But if I think about the Latin American economies -- Venezuela has been remarkablydriven by oil, obviously -- but when you look at Latin America , one of the few times, certainly, in my career where you've seensuch consistent strength across all the Latin American countries. And a common driver of that has been commodities, globalgrowth, or in the case of Venezuela, oil. So therefore, the sustainability of it -- you have to ask yourself the question, is what'sthe sustainability of long term demand and growth in places like China and what's happening with oil and commodity prices?

So as I look at Latin America -- actually, the reason I'm focusing on Latin America -- Latin America is what's driving the significantswing in the profitability of LAAM. We run our Middle East business very, very well., but it's a distribution business and generallyan earnings distributer margins. So when you see significant margin expansion in a place like LAAM, it's generally Latin America






or in South Africa. South Africa, as I said, hasn't been a key driver of LAAM's profitability. But I would say we are in an environmentin LAAM where you have to always be vigilant because it can be a volatile place. But we like our position, we like our share, welike our market positions, we've been there a long time, we have great brands there. And frankly, the economies are growingand we're taking advantage of it. I think that the key, over time, in terms of sustainability, is going to be a function of whathappens with these global demand drivers, because I think as long as they're robust, the LAAM countries can stay robust.


Thank you.


You're welcome.

D I S C L A I M E R

Thomson Financial reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes.

In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-lookingstatements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on anumber of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that theassumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that theresults contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDEAN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOESTHOMSON FINANCIAL OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ONTHIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGSBEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

©2007, Thomson Financial. All Rights Reserved. 1686040-2007-11-07T15:14:15.050






Cover PageCorporate ParticipantsRandy Arickx (1 Turn)Fritz Henderson (39 Turns)

Conference Call ParticipantsJohn Murphy (9 Turns)Brian Johnson (6 Turns)Himanshu Patel (11 Turns)Rod Lache (6 Turns)Jonathan Steinmetz (6 Turns)

PRESENTATION1. Operator2. Randy Arickx3. Fritz Henderson

QUESTIONS AND ANSWERS1. Operator2. John Murphy3. Fritz Henderson4. John Murphy5. Fritz Henderson6. John Murphy7. Fritz Henderson8. John Murphy9. Fritz Henderson10. John Murphy11. Fritz Henderson12. John Murphy13. Fritz Henderson14. John Murphy15. Fritz Henderson16. John Murphy17. Fritz Henderson18. John Murphy19. Fritz Henderson20. Operator21. Brian Johnson22. Fritz Henderson23. Brian Johnson24. Fritz Henderson25. Brian Johnson26. Fritz Henderson27. Brian Johnson28. Fritz Henderson29. Brian Johnson30. Fritz Henderson31. Brian Johnson32. Fritz Henderson33. Operator34. Himanshu Patel35. Fritz Henderson36. Himanshu Patel37. Fritz Henderson38. Himanshu Patel39. Fritz Henderson40. Himanshu Patel41. Fritz Henderson42. Himanshu Patel43. Fritz Henderson44. Himanshu Patel45. Fritz Henderson46. Himanshu Patel47. Fritz Henderson48. Himanshu Patel49. Fritz Henderson50. Himanshu Patel51. Fritz Henderson52. Himanshu Patel53. Fritz Henderson54. Himanshu Patel55. Fritz Henderson56. Operator57. Rod Lache58. Fritz Henderson59. Rod Lache60. Fritz Henderson61. Rod Lache62. Fritz Henderson63. Rod Lache64. Fritz Henderson65. Rod Lache66. Fritz Henderson67. Rod Lache68. Fritz Henderson69. Operator70. Jonathan Steinmetz71. Fritz Henderson72. Jonathan Steinmetz73. Fritz Henderson74. Jonathan Steinmetz75.

Documents

Q3 2007 General Motors Corp. Earnings Conference Call on ...online.wsj.com/public/resources/documents/GM-Transcript-2007110… · 07/11/2007 · Nov. 07. 2007 / 9:30AM, GM - Q3 2007