GM's Survival in "Substantial Doubt," Its Auditors Say
March 05, 2009
By Michelle Krebs
DETROIT -- General Motors Corp., as expected, said its auditors had raised "substantial doubt" about the automaker's ability to survive if it fails to end losses and its cash burn, according to the company's annual report filed with the federal government's Securities and Exchange Commission Thursday morning.
"Our future is dependent on our ability to execute our viability plan," GM said in its annual report. "If we fail to do so for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the U.S. bankruptcy code."
Despite the fact that the auditor's "going concern" warning was anticipated, the already suffering stock market didn't take the news well. In early trading, the slumping market was down yet again, and GM's stock price had slid 15 percent to $1.86 a share.
The auditor's warning sheds no new light on GM's dire situation, beyond providing an expert third-party opinion that the automaker is in every bit as bad shape as it has said it is for several months.
GM had indicated its government filings would include its auditor's "going concern" warning. Indeed, similar warnings are expected from auditors for numerous other companies, particularly automotive suppliers. When GM reported last week its $31-billion loss for 2008, it said it anticipated its auditors would question its viability in its upcoming government filing.
In a statement, GM pointed out that its auditors are required to assess whether there is substantial doubt about an entity's ability to continue as a going concern over the next year, and based on its liquidity situation, was expected.
"That opinion is dependent on a number of factors including our ability to execute our viability plan, compliance with our U.S. Treasury loans, volume recovery of the industry, and access to additional funding from the U.S. and certain other governments," GM's statement said. "Once global automotive sales recover and GM's restructuring actions generate the anticipated savings and benefits, the company is expected to again be able to fund its own operating requirements."
GM noted the auditor's report does not change the "aggressive actions" it is taking under its viability plan submitted to the U.S. Treasury Department on February 17. That report was required for GM's acceptance of $13 billion in federal loans so far. GM has requested up to another $16 billion, for a grand total of $30 billion, restructure outside a court bankruptcy proceeding.
Indeed, a restructuring with government help outside of bankruptcy court seems to be the favored course at this time. President Obama's recently established automotive task force has met with a steady stream of experts and parties with automotive ties to gather information, it appears.
Representatives, including company CEOs, from GM and Chrysler, both of which already have accepted loans, have met with the task force. So, too, have governors, mayors and other government officials in auto-dependent states and town.
On Thursday, Chrysler's potential Italian partner, Fiat, talks with the panel. Ford, which has not taken government funds but has asked for a possible credit line in the future, has talked with the task force. Even Toyota's top U.S. executive Jim Lentz is going before the task force next week to discuss the state of the industry.
Chapter 11 reorganization under U.S. bankruptcy law remains an option for GM and Chrysler. Even if that were the case, government funding in the form of debtor-in-posession would likely be involved to keep the lights on and to pay the bills during the reorganization. The freeze on the credit markets makes non-government financing for a bankruptcy unlikely.
Were GM or Chrysler to file for bankruptcy without government involvement, they might have to file for Chapter 7 liquidation.
Any form of court-supervised bankruptcy is the last resort, both GM and Chrysler have said repeatedly.
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