GM auditors are now suggesting the megabailout may not be enough and that in the end a Chapter 11 may be in the legendary automakers’ future:
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.
This would probably mean GM would be finished and not emerge intact in another form since many analysts, including some from the car companies, contend customers won’t buy from a car company that seems to be all but totally belly up. So far it doesn’t seem as if it’s going to make its March 31st government deadline to get its restructuring plan the way it wants it due to problems in reaching agreements with other needed industry players. The Detroit News gives a bit more detail on what this is likely to mean:
The auditors’ conclusion was not unexpected. GM signaled last week that it would receive a “going concern” opinion from auditing firm Deloitte & Touche LLP, which was paid $38 million to audit GM’s annual consolidated financial statements and provide other services.
The public, suppliers and people tied to the auto industry should not overreact, though, because the federal loans, Obama’s economic-stimulus package and the automakers’ restructuring plans will help salvage the industry, said Kimberly Rodriguez of the restructuring firm Grant Thornton LLP.
GM has assessed and rejected the option of filing Chapter 11 bankruptcy, saying it would further hurt sales. The automaker also said it would need as much as $100 billion in government aid to operate after filing bankruptcy.
The automaker had to secure amendments and waivers from key lenders last year because there was substantial doubt about GM’s viability. The waivers kept GM from violating debt agreements, but the company will need additional waivers if auditors come up with a similar conclusion this year.
GM listed a number of risk factors that could affect the company’s operations and financial condition.
Those include extracting concessions from the United Auto Workers and bondholders.
GM has until March 31 to make progress on concessions with the UAW and bondholders, two key parties that hold power to help the struggling automaker restructure and become a viable company.
Will the government feel this cannot be allowed to happen — or work to ease a Chapter 11 to either cushion an eventual total fall or have GM emerge leaner and smarter?
Joe Gandelman is a former fulltime journalist who freelanced in India, Spain, Bangladesh and Cypress writing for publications such as the Christian Science Monitor and Newsweek. He also did radio reports from Madrid for NPR’s All Things Considered. He has worked on two U.S. newspapers and quit the news biz in 1990 to go into entertainment. He also has written for The Week and several online publications, did a column for Cagle Cartoons Syndicate and has appeared on CNN.