GM to Sell Its Stake in Subaru Parent

By James R. Healey

General Motors is selling its stake in Fuji Heavy Industries, the company that owns automaker Subaru, and will restate its second-quarter earnings to show a quarterly loss of roughly $1 billion, most of it due to a loss on the Fuji Heavy holdings, GM said Wednesday.

That’s atop a net loss of $1.1 billion in the first quarter. GM reports third-quarter results Oct. 17.

It’s the second time in eight months that GM has taken a hefty charge for a bad investment in a foreign car company and restated earnings to reflect that. In February, it untangled a deal with Italy’s troubled Fiat. GM restated fourth-quarter 2004 earnings to reflect the cost of that, resulting in a loss for the quarter of $95 million rather than a profit of $630 million.

“These kinds of results have not been acceptable to us, and we’re working hard to change this,” says Toni Simonetti, GM financial spokeswoman. She notes that the ongoing problem, though, is poor results on North American auto operations, GM’s core business, and “the key issue for us is to turn around North America.”

GM will get roughly $725 million for its 20.1% stake in Fuji Heavy, purchased for $1.3 billion in 1999 and valued on GM books at $1.5billion. GM will write down that value by $700 million to $800 million, Simonetti says, and that will go against second-quarter earnings. Income from sales of the Fuji Heavy shares will be booked this quarter, helping offset the loss.

Fuji Heavy said earlier this year that it expected less revenue and lower profit than previously planned. At that point, GM’s investment was “impaired” and less valuable, Simonetti says.

The “Fuji Heavy sale is a minor liquidity event, but not a great return on investment,” Merrill Lynch auto analyst John Casesa said in a note to clients. Prudential Equity Group’s Michael Bruynesteyn calls the sale “a mild positive,” mainly because it suggests GM also might sell its 20% stake in Suzuki and its 8% of Isuzu.

GM says the Fuji sale was to end an underperforming relationship, not to raise cash. “GM and FHI came to the conclusion that there were not enough collaborative projects to sustain the alliance,” Troy Clarke, GM Asia Pacific president, said in a statement.

Toyota Motor says it will buy 68million shares, or about 8.7% of Fuji Heavy, and pay GM roughly $315million for them. Fuji Heavy will buy back most or all the rest at market value today, Friday and Tuesday.

Toyota would be deviating from its pattern if it kept its stake in Fuji Heavy at 8.7%. Toyota owns 51.2% of carmaker Daihatsu, 50.1% of heavy-duty truck maker Hino, 50% of component supplier Toyota Autobody and about 23% each of parts suppliers Denso and Aisin Seiki.

Subaru operates a factory in Lafayette, Ind., that manufactures 120,000 cars and SUVs a year.

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