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LAWL!! GM loses $82 BILLION in 3 years. Auditors suggest Chapter 11.....UAW = FAIL
GM auditors raise the specter of Chapter 11
Thursday March 5, 9:30 am ET
By Tom Krisher, AP Auto Writer
GM auditors raise doubts about viability, company says Chapter 11 possible if bailout fails
DETROIT (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.
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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.
Platt said the union concessions and debt restructuring laid out in the government loan terms, plus GM's own restructuring steps that include shedding unprofitable brands, will make the company healthy again once auto sales recover from current low levels.
"I think the government has forced the hands of everybody," Platt said. "In 18 months to 24 months, I anticipate they will be profitable, in the black. A mean and lean competitor that will be world-class."
U.S. auto sales in February dropped to the lowest level since December 1981. Last year, automakers sold 13.2 million vehicles in the U.S., about 3 million less than the 16.1 million sold in 2007. Analysts and auto company executives are predicting sales of just over 10 million this year.
GM has said it wants to avoid bankruptcy protection because it would scare off customers. Car buyers, the company has said, would be reluctant to buy from an automaker in Chapter 11 due to fears that it wouldn't be around long enough to honor warranties or make replacement parts.
GM, in its viability plan submitted to the Treasury last month, said it explored three bankruptcy scenarios, all of which would cost the government more than $40 billion.
Chief Operating Officer Fritz Henderson said at the time that the government would be the only place the company could get financing for a Chapter 11 reorganization, because the credit markets are frozen. The worst-case bankruptcy scenario would cost the government $100 billion, Henderson said, because revenue would severely drop due to a lack of sales.
He said there is not a lot of research about whether people would buy cars from an automaker in bankruptcy protection, but "that which is there suggests that sales fall off a cliff."
GM warned last month that its auditors may raise the "going concern" doubts, and industry analysts said auditors' statements may trigger clauses in some of GM's loans, placing them in default.
But the company said in its filing that it has received waivers of the clauses for its $4.5 billion secured revolving credit facility, a $1.5 billion term loan and a $125 million secured credit facility.
"Consequently, we are not in default of our covenants," the report said. "If we conclude that there is substantial doubt about our ability to continue as a going concern for the year ending Dec. 31, 2009, we will have to seek similar amendments or waivers at that time."
GM spokeswoman Julie Gibson said there is no clause in the terms of the government loans that places them in default if the auditors raise doubts about GM's ability to keep operating.
"That was not a condition of the loan. It's not in the agreement," she said.
They need to go chapter 11, restructure and re-negotiate their contracts with employees and suppliers so they could possibly be profitable. I don't think loans to get through this market downturn is going to be enough. Even if the market turned around today I don't see Gm making it through. They have been losing ground to better car companies for years.
Case in point, does anybody here own a domestic car? I have never bought a domestic car ever, and have no intentions of it. My wife and I are well educated, make well above average income and wouldn't be caught dead in a GM/Ford/Chrysler. Obviously the Corvette, viper etc are different I would drive one of those, but they won't support GM alone.
Your Nissan is so much better? I agree GM's financial woes were brought on all by themselves and for that they FAIL. However, their cars have come a long way and it sucks that most of the public won't see that because of a shady past track record.
Side note, if they do go out of business (which I doubt), I wonder what will happen to the vette.
my father has an 04 Suburban that has over 100k miles and runs like a champ, I dont think their lineup is crap, except their cars minus the Vette. I dont want to see them fail, but chapter 11 may be the only thing that saves them.
The Z is the only import I've ever owned. I've had a Saturn SL, Camaro Z28 and a Camaro v6 (still have). I'm not one of these people that gets a hard on for the whole Import vs domestic deal.
Your Nissan is so much better? I agree GM's financial woes were brought on all by themselves and for that they FAIL. However, their cars have come a long way and it sucks that most of the public won't see that because of a shady past track record.
Side note, if they do go out of business (which I doubt), I wonder what will happen to the vette.
I think lineup vs lineup Nissan is better than GM right now.
Versa,Sentra, Altima, Maxima > Aveo, Cobalt, Malibu, Impala
Me either, I go with what I like. But I can't jusitfy giving mine and your tax dollars to a company that is obviously very poor at managing their assets.
I say they choke on their failures, file for chapter 11, and learn from the past.
I own 2 nissans right now, but all of my other cars have been Jeeps/Chryslers. If I was in the market for a new truck I would check out the new Jeep, I think it looks pretty good. I buy what I like and what is right for me at the time.
1997 Z28
1999 SS
2002 Acura TL
2003 350Z
2007 Audi A4 S-Line
2007 Audi S4
Next car.....G37/M45/M35
I learned my lesson ten years ago.
LOL I will say as much I as I loved my Z28 and v6 the build quality(not reliability) was terrible, but then again I had more problems with the Z than either combined. I've never owned a euro though.
LAWL!! GM loses $82 BILLION in 3 years. Auditors suggest Chapter 11.....UAW = FAIL
my father has an 04 Suburban that has over 100k miles and runs like a champ, I dont think their lineup is crap, except their cars minus the Vette. I dont want to see them fail, but chapter 11 may be the only thing that saves them.
