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GM Reports Improved Second-Quarter Financial Results


* Reported net loss of $3.2 billion, or $5.62 per share
* Adjusted net income of $1.2 billion, or $2.03 per share
* Structural cost reduction target increased to $9 billion
* Increased liquidity to $22.9 billion, supported by improved cash flow
* Record revenue of $54.4 billion

DETROIT – General Motors Corp. (NYSE: GM) today reported significantly improved 2006 second quarter financial results. Global automotive operations were profitable on an adjusted basis, excluding special items, for the first time since 2004, and the company posted a second consecutive quarter of record revenue.

GM reported a net loss of $3.2 billion, or $5.62 per share, for the second quarter of 2006, compared with a reported loss of $987 million, or $1.75 per share, for the year-ago quarter. The net loss for the quarter included a total of $4.3 billion, or $7.66 per share, in special items that reflected a previously announced $3.7 billion after-tax charge related to the successful accelerated attrition program, in which 34,400 hourly employees participated. Other special items included a loss related to the pending sale of 51 percent of GMAC, a gain on the disposition of Isuzu stock, and restructuring charges.

GM posted 2006 second-quarter adjusted net income, excluding special items, of $1.2 billion, or $2.03 per share, on record revenue of $54.4 billion. This reflects a $1.4 billion improvement from the year-ago adjusted loss of $231 million, or $0.41 per share, on revenue of $48.5 billion.

“With the support of our employees, unions, dealers, suppliers and stockholders, we are moving rapidly and aggressively to address our challenges and restructure GM for future success,” said Rick Wagoner, GM chairman and chief executive officer. “It’s rewarding to see our automotive business return to profitability on an operating basis and a clear sign that we’re on the right track, but there is more work to be done.”

Wagoner also said the success of the accelerated attrition program in the United States , along with other cost initiatives, led GM to increase its structural cost reduction target in North America to $9 billion from $8 billion on an average annual running rate basis by the end of 2006.

“Our turnaround has not just gained traction, it’s accelerating into high gear,” Wagoner said. “While significant work still remains, our ability to identify and initiate $9 billion in cost cuts over the course of the past year is unprecedented in this industry.

“We’re particularly pleased with the speed with which our people have implemented our turnaround plan. Conventional wisdom is that you can’t turn a ship as big as GM around quickly. We aim to prove that conventional wisdom wrong.”

GM Automotive Operations

GM’s global automotive operations earned $362 million on an adjusted basis, excluding special items, representing an improvement of $1.3 billion year-over-year. This is due primarily to significant improvement in GM North America and continued profitability improvement in other regions.

GM’s global market share in the second quarter was 13.8 percent, up from the first quarter market share of 13.1 percent, but down from 15.1 percent last year. The change in global market share is largely attributable to last year’s highly successful employee discount incentive program in North America and lower fleet sales in Europe.

“We know we have to develop and build great cars and trucks to grow our business and we’re encouraged by the recent success of our newest vehicles, particularly in the U.S. market,” Wagoner said. “Our new full-size SUVs, the Chevrolet Impala and HHR, and Pontiac G6 have all posted strong sales this quarter. Our newly launched vehicles will account for about 30 percent of our U.S. retail sales this year and grow to 40 percent next year.”

GM North America posted an adjusted net loss of $85 million, excluding special items, in the second quarter of 2006, a $1.1 billion improvement over the prior year period. The improvement is attributable to reductions in GM’s cost base across a broad range of activities, including improvement in warranty and other quality-related costs and a reduction in ongoing pension expense, due largely to the success of the hourly attrition program.

The attrition program and other cost initiatives have enabled GM to increase its structural cost reduction target in North America. GM expects to realize approximately $6 billion in cost savings in 2006, up from the previously announced $5 billion. A major contributor to this improvement is the April 30 remeasurement of the U.S. hourly pension plans, which will result in a pre-tax pension expense reduction of about $700 million for the 2006 calendar year.

“We have made solid progress in implementing our North America turnaround plan in the first half, posting more than $2 billion worth of improvements at GMNA, excluding special items,” Wagoner continued. “More significantly, the impact of our cost-reduction efforts on the bottom line will accelerate in the second half. This, combined with building sales momentum from our new cars and trucks and improved marketing, should enable us to continue to improve year-over-year results significantly.”

GM Europe posted adjusted earnings, excluding special items, of $124 million for the quarter , an improvement of $94 million compared with earnings of $30 million in the second quarter of 2005. The improved earnings reflect favorable material costs and improvements in pricing.

“Our European operations continue to gain momentum, posting a second consecutive profitable quarter, excluding special items ,” Wagoner said. “We are pleased with Saab’s global market performance, posting a sales increase of 24 percent for the first half of the year, and the continued growth of the Chevrolet brand in Europe. We are also encouraged by the response to the new Opel/Vauxhall Corsa, unveiled at the recent London Motor Show and scheduled to arrive in showrooms this fall.”

On an adjusted basis, excluding special items, GM Asia Pacific posted earnings of $167 million in the second quarter, down slightly from last year’s earnings of $183 million. The difference is more than accounted for by the loss of equity income from Suzuki following the reduction in GM’s equity stake. Market share in the region increased to 6.7 percent in the second quarter of 2006, up from 6.2 percent during the second quarter of 2005, driven by strong sales in China.

GM Latin America, Africa and Middle East posted adjusted earnings, excluding special items, of $156 million, a significant increase of $131 million compared with last year’s second quarter results of $25 million. This reflects an increase in volume and improved pricing.


General Motors Acceptance Corporation (GMAC) reported record net income of $898 million for the second quarter of 2006, up $82 million from second quarter 2005 earnings of $816 million. GMAC’s mortgage business, ResCap, reported increased results, while the Automotive Finance and Insurance businesses reported lower earnings.

“GMAC continues to perform well despite pressure on profit margins from rising interest rates,” Wagoner said. “We remain on track to complete the sale of 51 percent of GMAC to a consortium of investors in the fourth quarter.”

GMAC’s Automotive Finance operations reported earnings of $251 million, down $115 million from $366 million earned in the second quarter of 2005. The decrease is due to a

combination of continued margin pressures, lower remarketing results in the U.S. and Canada and higher consumer credit provisions, slightly offset by certain favorable non-U.S. tax rate changes and increases in investment income.

ResCap earnings were $547 million in the second quarter of 2006, up from the $300 million earned in the year-ago period, due primarily to the $259 million gain on sale of its equity investment in a regional homebuilder. Excluding the gain on sale, ResCap earnings declined slightly in comparison to the same period last year. Mortgage originations were $47 billion for the second quarter, representing an increase from the $42.6 billion in the second quarter of last year.

GMAC’s insurance operations generated net income of $80 million for the quarter, down $20 million from earnings of $100 million in the second quarter of 2005, primarily due to a combination of lower capital gains and wholesale losses incurred in the quarter related to hail storms in the Midwest. In addition, GMAC’s insurance operations maintained a strong investment portfolio, with a market value of $7.7 billion on June 30, 2006 , including after-tax net unrealized capital gains of $545 million.

GMAC provided a significant source of cash flow to GM through the payment of a $1.4 billion dividend in the second quarter.

GMAC continues to maintain adequate liquidity with cash reserve balances at June 30, 2006 of $22.7 billion, including $17.2 billion in cash and cash equivalents and $5.5 billion invested in marketable securities.

Cash and Liquidity

GM continues to bolster its liquidity position, a key element to fund the North America turnaround plan. GM generated adjusted operating cash flow of $700 million in the second quarter of 2006, a more than $2 billion improvement versus the year-ago period. Cash, marketable securities, and readily-available assets of the Voluntary Employees’ Beneficiary Association (VEBA) trust totaled $22.9 billion on June 30, 2006 , up from $21.6 billion on March 31, 2006.

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Forward-Looking Statements
In this press release and in related comments by General Motors’ management, we will use words like “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” “designed,” or “impact” to identify forward-looking statements that represent our current judgments about possible future events. We believe these judgments are reasonable, but GM’s actual results may differ materially due to a variety of important factors.

Among other items, such factors might include: our ability to achieve reductions in costs as a result of the turnaround restructuring, health care cost reductions and an accelerated attrition program, to realize production efficiencies and to implement capital expenditures at levels and times planned by management; the pace of product introductions and market acceptance of our new products; changes in the competitive environment and the effect of competition in our markets, including on our pricing policies; our ability to maintain adequate liquidity and financing sources and an appropriate level of debt; restrictions on GMAC’s and ResCap’s ability to pay dividends and prepay subordinated debt obligations to us; the final results of investigations and inquiries by the SEC and other government agencies; changes in relations with unions and employees/retirees and the legal interpretations of the agreements with those unions with regard to employees/retirees; our ability to complete the timely sale of a 51-percent controlling interest in GMAC and the effect of that sale on the results of GM’s and GMAC’s operations and liquidity; labor strikes or work stoppages at GM or its key suppliers such as Delphi Corporation or financial difficulties at those key suppliers; negotiations and bankruptcy court actions with respect to our relationship with Delphi; additional credit rating downgrades and their effects; costs and risks associated with litigation; new or amended laws, regulations, policies or other activities of governments, agencies and similar organizations; price increases or shortages of fuel; changes in economic conditions, commodity prices, currency exchange rates or political stability in the markets in which we operate; and other factors affecting financing and insurance operating segments’ results of operations and financial condition such as credit ratings, adequate access to the market, changes in the residual value of off-lease vehicles, changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which its mortgage subsidiaries operate, and changes in its contractual servicing rights.

In addition to these factors, a variety of other factors may materially affect GMAC’s actual results, including: changes in the competitive environment and the effect of competition in GMAC’s markets, including GMAC’s pricing policies; GMAC’s ability to maintain adequate financing sources and an appropriate level of debt; the profitability and financial condition of GM, including changes in production or sales of GM vehicles and risks based on GM’s contingent benefit guarantees; changes in GMAC’s 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; and the threat of natural calamities.

The most recent annual reports on Form 10-K and quarterly reports on Form 10-Q filed by GM and GMAC provide information about these factors, which may be revised or supplemented in future reports to the SEC on those forms or on Form 8-K.

We caution investors not to place undue reliance on forward-looking statements, and do not undertake any 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 Non-GAAP Financial Measures

This press release and the accompanying tables include the following non-GAAP financial measures: (a) adjusted net income, (b) automotive cash flow, (c) GM North America vehicle revenue per unit, and (d) GMAC loss on sale. Each of these financial measures excludes the impact of certain items and therefore has not been calculated in accordance with U.S. generally accepted accounting principles, or GAAP.

Adjusted Net Income

Adjusted net income excludes a charge for the special attrition program agreement, restructuring and impairments charges, and gains and losses on the sale of businesses and business interests. Each of the adjustments is described in more detail below. This press release also contains a reconciliation of each of these non-GAAP measures to its most comparable GAAP financial measure.

Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our operating results because they exclude amounts that GM management does not consider part of operating results when assessing the performance of the organization and measuring the results of GM’s performance. In addition, GM has historically reported similar non-GAAP financial measures. GM believes that inclusion of these non-GAAP financial measures provides consistency and comparability with past earnings releases. GM management uses these non-GAAP financial measures to evaluate GM’s performance and believes these measures allow GM management to readily view operating trends, perform analytical comparisons, benchmark performance among geographic regions and assess whether the GM North American structural cost turnaround plan is on target. Also, GM management uses adjusted net income for forecasting purposes, and in determining its future capital investment allocations. Also, adjusted net income is a key variable in determining management incentive compensation. Accordingly, GM believes these non-GAAP financial measures are useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making.

While GM believes that these non-GAAP financial measures provide useful supplemental information, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies. Items such as special attrition program agreement and restructuring charges that are excluded from GM’s non-GAAP financial measures can have a material impact on net earnings. As a result, these non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, net earnings, cash flow from operations or other measures of performance prepared in accordance with GAAP. GM compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measure. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures that are included elsewhere in this press release.

The following is a discussion of the adjustments to the comparable GAAP financial measure that produces our non-GAAP financial measures:

* Special attrition program charges. Our non-GAAP financial measures exclude the estimated charge associated with the special attrition program agreement among the UAW, GM and Delphi. Management believes it is useful in evaluating GM’s and its management teams’ and business units’ performance during a particular time period to exclude charges associated with the special attrition program, because this irregular charge is generally associated with right sizing the GM North America business. Accordingly, management does not consider these costs as part of its core earnings for purposes of evaluating the performance of the business, and excludes such costs when evaluating the performance of the Corporation, its business units and its management teams and when making decisions to allocate resources among GM’s business units.

* Restructuring and impairment charges. Our non-GAAP financial measures exclude exit costs and related charges, primarily consisting of severance costs and lease abandonment costs, and any subsequent changes in estimates related to exit activities as they relate to GM’s significant restructurings, which involved significant layoffs. Management believes the exclusion of restructuring and impairment charges from adjusted net income is useful because management does not consider these costs part of GM’s core earnings in evaluating GM’s operational managers and including the restructuring charges would hamper investors’ ability to evaluate the performance of our management in the manner in which GM’s management evaluates performance. Additionally, management excludes restructuring and impairment charges in its determinations regarding the allocation of resources, such as capital investment, among the Corporation’s business units and as part of its forecasting and budgeting.

* Gains and losses on the sale of business units and business interests. The gains or losses on the sale of business units and business interests are excluded from adjusted net income. While GM is involved in sales of its business units and business interests from time to time and the Corporation may have significant gains or losses from such sales in the future, such events have historically occurred sporadically. Management excludes the charges associated with these events when it evaluates the Corporation’s operations and for internal reporting, forecasting purposes and allocation of additional resources.

* Adjusted Operating Cash Flow. GM also includes the use of non-GAAP automotive cash flow in its earnings releases and charts for securities analysts. Management believes that providing automotive cash flow furnishes it and investors with useful information by representing the cash flow generated or consumed by its automotive operations, including cash consumed by automotive capital expenditures and equity investments in companies related to our core business and cash generated by sales of automotive operating assets and equity investments in companies related to GM’s core business, before funding non-operating-related obligations including debt maturities, dividends and other non-operating items. Management uses this non-GAAP financial measure to assess its automotive cash flow when evaluating the performance of GM, its business units and its management teams and when making decisions to allocate resources among GM’s business units.

* GM North America Vehicle Revenue per Unit. GM’s earnings releases and charts for securities analysts also include the use of non-GAAP measures of revenue per vehicle. Management uses revenue per vehicle to track operating efficiency and to facilitate comparisons between periods and between manufacturers, and believes that it would provide valuable information to investors who are interested in identifying trends and comparing different companies. Revenue per vehicle includes certain sales to other GM regions that are excluded from GAAP reporting, and excludes non-vehicle sales such as service parts and operations and OnStar service and other income that GM does not derive from the sale of vehicles such as interest on the GM credit card. Management also includes sales to daily car rental companies in revenue per vehicle; although they are excluded from GAAP reporting because of GM’s repurchase obligations.


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