Nov. 7 (Bloomberg) -- General Motors Corp., the world's largest automaker, reported a record $39 billion quarterly loss after three money-losing years forced the company to write down the value of future tax benefits.

GM fell as much as 8.8 percent in early trading after the size of the loss surprised analysts. Excluding the tax writedown, the deficit was $2.80 a share, more than 10 times the 22 cents estimated by 15 analysts surveyed by Bloomberg.

``This has been a challenging year, for sure,'' GM Chief Financial Officer Fritz Henderson told reporters this morning in Detroit.

GM is writing down the tax assets because it may not be able to generate enough earnings to use the benefits. The move reflects a darkening outlook for the U.S. economy, as GM cited mortgage-related losses at its partly owned GMAC LLC finance unit and ``more challenging'' auto-market conditions in the U.S. and Germany.

GM's loss of $68.85 per share widened from a deficit of $147 million, or 26 cents, a year earlier. The non-cash charge is related to deferred tax assets in the U.S., Canada and Germany, the Detroit-based company said in a statement today.

GM said the results also reflected an after-tax gain of $3.9 billion from the sale of its Allison Transmission unit, $1.6 billion in pension-service costs related to prior labor agreements, and $400 million in charges connected to its former Delphi Corp. subsidiary.

GM fell $2, or 5.5 percent, to $34.16 at 8:36 a.m. in early trading. Before GM announced the charge late yesterday, the shares rose 16 cents to $36.16 in New York Stock Exchange composite trading, putting their gain at 18 percent this year.

Currency

Henderson said the losses at GMAC's mortgage unit and a strengthening Canadian dollar against the U.S. dollar were significant factors in the wider-than-expected loss. The Canadian currency has risen 28.3 percent against the U.S. dollar this year.

The automaker attributed the charge to a ``three-year historical cumulative loss'' in the U.S., Canada and Germany, without elaborating.

GM had a net loss of $757 million related to its 49 percent stake in GMAC, which posted a $1.6 billion third-quarter loss on Nov. 1. GM sold 51 percent of GMAC last year to a group led by Cerberus Capital Management LP.

Accounting Matter

Under U.S. accounting rules, GM assesses the need each quarter for a so-called valuation allowance against the deferred tax assets. In 2005, GM took a valuation against tax assets in South Korea that it reversed last year when the outlook for profits improved. The automaker also took a similar charge in Brazil in 2005 that it reversed in 2006.

Henderson said he couldn't estimate when GM might be able to use the deferred tax assets again and declined to forecast when the automaker might return to profit.

``Certainly having ResCap turn into the red, then bringing GMAC into the red, has an impact on us,'' he said.

GM said it previously had determined it wouldn't need the allowance for the U.S., Canada and Germany because losses over the three-year period were caused by one-time expenses and because of the continued expectation of strong profits at GMAC and improved earnings in North America.

``The establishment of a valuation allowance does not have any impact on cash, nor does such an allowance preclude us from using our loss carryforwards or other deferred tax assets in the future,'' Henderson said in the statement.

Short-Term View

The allowance also doesn't ``reflect a change in the company's view of its long-term automotive financial outlook,'' Henderson said.

GM reported deferred tax assets of $34.8 billion in the U.S., $3.1 billion in Canada and $2.5 billion in Germany as of the end of last year, in an annual regulatory filing in March. The three countries accounted for $40.4 billion of GM's $40.8 billion in such assets, according to that filing.

Today's results including the tax-related charge may overshadow GM retaking the No. 1 spot in worldwide sales from Toyota Motor Corp. Chief Executive Officer Rick Wagoner also moved to reduce future costs by approving a labor accord that eliminates retiree health-care obligations and cuts new workers' pay by 50 percent.

Labor Accord

GM completed an agreement with the United Auto Workers last month after a two-day strike to transfer $47 billion in future union retiree costs to the union in exchange for a one-time contribution of about $32 billion.

Wagoner had already reached labor agreements to close plants and trim health-care expenses, which the company has said would reduce its costs by $9 billion this year.

GM has said the union retiree health fund will drain cash next year by $3.3 billion before adding $2.8 billion to cash flow in 2010 and $3.3 billion in 2011.

GM's 8.375 percent note due July 2033 rose 0.5 cent to 89.75 cents on the dollar yesterday, according to Trace, the NASD's bond-price reporting service. The yield fell to 9.44 percent.

Credit-default swaps tied to General Motors Corp. climbed 4 basis points to 598 basis points, the highest in seven weeks according to CMA Datavision in London.

An increase signals declining investor confidence in the company's ability to pay back its debt.

To contact the reporters on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net ; Greg Bensinger in New York at gbensinger1@bloomberg.net