S&P; Sees Profitability for GM in ’06

Rating company Standard & Poor’s on Tuesday said it expected General Motors Corp. to swing to profitability in 2006 but said a bankruptcy filing was a risk if financial performance at the world’s largest automaker did not improve.

“We think there could be some improvement in” 2006, S&P; credit analyst Bob Schulz said in discussing a special report the financial information company issued on the outlook for the auto industry.

“But if there is not and things were to continue along relative to the financial performance of ‘05, then the company could ultimately reach the point where they choose to restructure,” Schulz said.

GM lost $8.6 billion in 2005 as it struggled with high labor and commodities costs, loss of U.S. market share to foreign rivals and sluggish sales of profitable sport utility vehicles. The automaker is optimistic about its new line of redesigned SUVs, called the GMT-900 series, which are launching this year.

S&P; said success of new SUV models was “critical” for GM. S&P; analyst Efraim Levy said sales numbers for the GMT-900 SUVs were encouraging.

Levy said one of GM’s biggest remaining challenges was the uncertainty surrounding talks with its former subsidiary and parts supplier Delphi Corp. GM is in discussions with the supplier and the United Auto Workers union that call for cuts to Delphi’s payroll and benefits in exchange for some compensation for unionized workers.

Delphi has said it will ask the court to void its labor contracts if an agreement to cut wages and benefits is not reached by the end of March. That could prompt a strike at Delphi, which could cripple GM and force it to burn through billions of dollars a week, analysts have said.

GM is also in talks with potential partners to sell a majority stake in its finance arm, General Motors Acceptance Corp.

GM shares fell 23 cents, or 1.1%, Tuesday to $21.14.