DETROIT – General Motors Corp. on Wednesday announced it had lost $38.6 billion in the third quarter, the highest ever reported by the world?s largest automaker, but the good news is it was primarily a noncash loss stemming from write downs on tax credits from the sub prime mortgage crisis.

The write downs, analysts warn, means GM is likely to continue struggling as CEO Rick Wagoner tries to write his corporate ship.

Before the write-down, GM would have still reported a loss, the company said. It blamed a big loss stemming from subprime home loans by its former financing unit and soft market conditions in the U.S. and Europe.

The massive setback comes even though GM has cut tens of thousands of jobs in North American and Europe, launched a volley of new models and boosted boost revenue in the quarter to $43 billion, a record level.

The results indicate GM based its 2005 restructuring plan on assumptions that didn’t pan out, particularly about expected profits from its GMAC Financial Services unit and U.S. auto sales. In scrambling to respond, the company is finding it can’t cut costs fast enough to offset declining industry sales in its core North American and European markets, and can’t sell assets fast enough to cover the cash it is using up.

A big portion of GM’s loss before the massive write-down stemmed from a $757 million loss the company booked on its 49 percent interest in GMAC. Once highly profitable, GMAC is being dragged down by ResCap, a home-mortgage business and a big player in subprime lending. ResCap lost $1.8 billion in the third quarter, wiping out profits GMAC made in auto financing.

In North America, GM based its restructuring plan on expectations that industry-wide U.S. auto sales would remain around 17.5 million a year. Instead they are tracking closer to 16 million this year.

In the third quarter, GM’s North American and European operations represented more than 80 percent of revenue, but the units posted a combined operating loss of $337 million, or a loss of $195 per vehicle sold in those regions.

GM’s auto operations used up $2.5 billion more than they took in during the third quarter. A year ago, it has negative cash flow of $3.9 billion.

GM has been offsetting the cash outflow by selling assets. During the quarter, overall liquidity rose to $30 billion, thanks the sale of the profitable Allison Transmission unit, which generated a $5.4 billion gain.

“Things are bad and getting worse,” Bear Stearns auto analyst Peter Nesvold said in a note to clients shortly after GM’s earnings were released.

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