General Motors Corp. said in a government filing Thursday that its accounting firm has found there is “substantial doubt” about the automaker’s ability to survive.
The embattled automaker made the disclosure in a 480-page filing with the Securities & Exchange Commission.
GM has sustained large and continuing losses, while saying it needs additional federal loans to remain in business. Thursday’s statement from the company’s auditors presents another hurdle the automaker will have to clear as it makes the case that it deserve additional taxpayer support going forward.
The Obama administration, under the terms of the $13.4 billion in federal loans GM has already requested, must determine that the company’s plans make it viable in the long run.
The government must determine that GM has a “positive net present value” or else demand repayment of the loans within 30 days – a development that would almost certainly plunge the company into bankruptcy and quite possibly force it out of business.
But the government has wide latitude in how it judges the company’s net present value, based on assumptions it makes about future sales, car prices and costs for the company going forward. The administration clearly does not want to force the largest U.S. automaker into bankruptcy.
The GM filing disclosed that the Treasury already agreed to waive requirements that the automaker meet certain terms of the original loan agreement, including that it win agreement with creditors to convert two-thirds of its unsecured debt to equity by Feb. 17.
But even if the Obama administration continues to give support to GM (GM, Fortune 500) and rival Chrysler LLC, which has also received federal loans, Thursday’s filing could create problems in its relations with suppliers and banks.
For example, concerns about GM’s future could cause companies that supply it with parts start to demand cash on delivery from the cash-starved automaker, according to GM’s filing.
While parts makers would be reluctant to damage their largest customer with such a demand, they may have no choice because of GM’s filing. Those parts makers’ own auditors and banks could use the doubts raised by GM’s auditors to raise questions about their own future.
Privately held Chrysler does not have to file a year-end financial statement with the SEC. Last week,Ford Motor (F, Fortune 500) said its auditors have not substantial doubt about its future. Ford went into this auto crisis with a much stronger cash position than GM or Chrysler.
GM said Thursday auto sales, which have plunged more than 40% in recent months, must rebound by next year if it is to survive.
Meantime, GM also said it needs additional federal loans to stay in business.
GM received $13.4 billion so far, and it has asked for up to $16.6 billion more. In addition, it is seeking $7.7 billion in loans to convert production from light trucks to more fuel efficient cars under an Energy Department loan program.
“The failure to obtain sufficient funding from the U.S. government or governments outside the United States may require us to shrink or terminate operations or seek reorganization for certain subsidiaries outside the United States,” the filing said.
“If we fail to obtain sufficient funding for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief under the U.S. Bankruptcy Code,” GM added.
GM’s stock was 12% lower in premarket trading.
(Source: CNN)
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6 Responses
Good. After they file off bankruptcy, it will sold off to new owners, and perhaps they’ll make better cars.
CHAP 11 REORGANIZATION!
Get rid of the Unions once and for all. Have non-Union workers just like they do at Honda, Toyota, and whoever else builds cars here in the new USSA.
Car prices will drop by an estimated $2500 per car and people ‘may’ buy GM cars again.
That being said if they really want to make good with customers, they should allow us to trade in our cars, which have problems that they wouldnt admit to, to newer models without it affecting our loans, etc. I have one of those vehicles that the problem wouldnt show up on the computer so it was MY imagination. It wasnt my imagination when I bought a new car — not a GM! No way! It was a Honda.
Hey, guys, grab a new Chevy Suburban or Tahoe, or a GMC Yukon now.
They’re giving them away real cheap. The dealers are desparate. Sales are down 50% or more, from last year!
(Assuming, of course, that you can afford to feed these gas guzzlers).
Mark,
The managers were also making vastly more at GM than at the Japanese companies.. Transfering that money from workers to managers won’t make the cars cheaper, and note how the managers were drawing seven and eight figure incomes even while the company was failing.
Then you have the quality issue. Japanese companies rely on good employee relations to promote quality, not to mention training. GM relied on a mixture of bribery and intimidation.
Then you have the marketing problem. Foreign companies did market research to see what would sell, American companies decided which models they wanted people to buy, and it turned out the Amreican managers ended up producing cars they couldn’t sell.
To GM’s credit, their cars are much easier and cheaper to service than foreign cars, and boy is that important if you have an American car.
akuperma,
I see you have a problem with people who make money which makes you the perfect lib. I got it now.
Thank you for adding to my points. Bottom line is that the “non-Union cars” are cheaper and better than GM so we go with what works for us.