GM Auditors Raise the Specter of Chapter 11

March 5th, 2009

Via: AP:

General Motors Corp.’s auditors have raised “substantial doubt” about the troubled automaker’s ability to continue operations, and the company said it may have to seek bankruptcy protection if it can’t execute a huge restructuring plan.

The automaker revealed the concerns Thursday in an annual report filed with the U.S. Securities and Exchange Commission.

“The corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern,” auditors for the accounting firm Deloitte & Touche LLP wrote in the report.

In pre-market trading, GM shares fell 18 percent from Wednesday’s close, to $1.80.

GM has received $13.4 billion in federal loans as it tries to survive the worst auto sales climate in 27 years. It is seeking a total of $30 billion from the government. During the past three years it has piled up $82 billion in losses, including $30.9 billion in 2008.

The company faces a March 31 deadline to have signed agreements of concessions from debtholders and the United Auto Workers union to show the government it can become viable again. On Feb. 17 it submitted the restructuring plan to the Treasury Department that includes laying off 47,000 workers worldwide by the end of the year and closing five more U.S. factories.

GM said in its filing that its future depends on successfully executing the plan.

“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,” the Detroit-based automaker said in the annual report.

GM, the report said, is highly dependent on auto sales volume, which dropped rapidly last year. “There is no assurance that the global automobile market will recover or that it will not suffer a significant further downturn,” the company wrote.

But Harlan Platt, a professor at Northeastern University in Boston who teaches about corporate turnarounds, said the auditors’ concerns don’t mean GM is headed for a bankruptcy filing. The auditors, he said, are merely stating what the world has known for months.

“A company which has borrowed $13.4 billion and has asked for billions more around the world is obviously in trouble. So this is anticipated,” he said.

One Response to “GM Auditors Raise the Specter of Chapter 11”

  1. Eileen says:

    Imagine that. The auditors spoke truth to power.
    Peace be to the firm of Deloitte and Touche. They did their job, fer crying out loud, which is to provide their opinion on whether the entity is a going concern. If the numbers don’t add up, it IS the DUTY of the auditors to let it be known. And there it is.
    There is a saying in my profession when things go wrong, “where were the auditors?”
    Imagine if Arthur Anderson had done that with Enron. Hah. Grey Davis would still be governor of California and all the rolling blackout fraudelent manipulation of the West Coast energy markets wouldn’t have occurred, and oh well. Maybe if Enron had been exposed as a fraud, well then maybe banks and all the other dicks that played into credit defaults and mortgage bullshit would have never dreamed up their schemes that have got the world to where it is now.
    What Deloitte Touche just did in my mind is utterly awesome. Stockholders (what may be left of them) have been forewarned. The federal government has be forewarned. One test of whether a company will remain a going concern is whether it will exist without government contracts, etc.
    There is a saying – and I can’t remember where I learned it- where GM goes the US economy goes.
    I for one think GM should be “allowed” to die. Hopefully a peaceful death.
    I think of all the workers at GM who know how to build freakin cars who must have been ashamed to build SUV’s when they have the skills and know how to build something better, smarter, cheaper.
    Perhaps if GM is allowed to die, something good will come of it. Auto workers might join together, not to bitch about GM’s fate, but to create something on their own. Much better. Leaner. No corporate jets required to get out a train, a car, whatever it is without the corpse of the GM CORPORATION hanging onto them like a freaking albatross.

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