GM on ‘brink’ of bankruptcy
March 6, 2009 by David Twomey
The giant US carmaker General Motors has today admitted its auditors had raised “substantial doubt” about its ability to survive outside bankruptcy if it fails to stem its losses and stop chewing through its cash reserves.
Reuters newsagency says the “going concern” warning from the struggling carmaker had been expected, but underscored how high were the stakes for GM as it seeks up to US$30 billion in government aid to restructure outside a court-supervised bankruptcy process.
The news saw GM’s shares plunge just over 17 per cent to US$1.82.
In a statement issued after the auditor announcement GM said its creditors had agreed to waive a requirement that could have allowed them to force the carmaker to repay more than US$6 billion in loans because of the warning in order to allow GM to press its case for government aid.
GM did warn late last month that it expected auditors Deloitte & Touche would question its viability after it reported a loss of nearly US$31 billion for 2008.
In a statement, GM said the auditors’ statement “was not unexpected.”
“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,” the 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.
“The auditor’s opinion has no impact on the aggressive actions we are taking to restructure our business for long-term viability.”
At least one major supplier, Lear Corporation, also expects to get a “going concern” flag from its auditors. Ford Motor Company did not get one.
In a second announcement, bound to cause anger amongst its detractors, GM said CEO Rick Wagoner’s 2008 base salary increased to US$2.1 million from US$1.5 million in 2007, but his total compensation fell by nearly two-thirds.
For 2008, Mr Wagoner’s total compensation dropped to US$5.5 million from US$14.1 million. Most of the drop was attributed to a US$7.2 million decline in the value of his stock awards.
Mr Wagoner has since agreed to take a base salary of US$1 a year as part of the company’s viability plan submitted to the US government.
The disclosures came in GM’s delayed annual report to US Securities Regulators and a 25-page discussion of the growing risks facing the company, ranging from tight credit and troubled suppliers to slumping demand for new cars around the globe.
GM has about US$1 billion in convertible debts that mature on June 1, and if it fails to get a deal to restructure that debt, the looming payment could force GM into bankruptcy, it said.
GM faces a March 31 deadline to complete concession talks with the UAW and bondholders to reduce its debt load as part of a bid to convince the task force assembled by US President Barack Obama that it can be made viable with a new round of government help.
GM has lost about $82 billion since 2005 and has been hit hard by the steep drop in global vehicle sales in the past year.
GM said it expected to post a loss that could top $1 billion in the current quarter as it begins to report results separately for its troubled Saab unit, which is up for sale and attempting to reorganise under new ownership and with aid from the Swedish government.
Print it: 
If GM does go broke
What happens to the billions that the american government has already given them ?
Also I wonder who would buy Holden
Well goodbye GM……
Horse…..hopefully no-one would buy a Holden. WHo would want to buy a car from a company that doesnt exist?
To be expected. The taxpayer’s money was an absolute waste, that could have been spent elsewhere and actually make a HUUUGEEE difference. All it did was prolong it. GM’s death is inevitable. The US govt was very irresponsible in wasting so much money towards it.
I think the conditions of the loan mean that the Govt gets first dibs on any money GM can get from selling off assets Horse.
The US government surely can’t let this dead company exist any longer? The asset / liability deficit has ballooned out by another 26 billion to be at -86 billion US dollars. On paper, every single GM share is worth negative $141!
GM’s assets would be sold off to the highest bidder. My guess is Mr Rudd would try and assist in finding a buyer. Buy that I mean throwing $$ at it to make it more appealing. Most likely candidate for my money is Hyundai.
Worst case is Holden would be forced to cease operations a bit like Saab until a buyer was found.
A thing I thought of with the whole keeping companies running to ensure unemployment doesn’t hit the fan…
At least the people who get unemployment benefits are going to be spending most of it, which will stimulate the economy far more than paying employees and execs money and letting the company lose money in other ways.
I think this should be a big consideration when you talk about the increase in unemployment following a bankruptcy of a big organisation like GM.
Please put them out of their misery. If GM was a lame horse they would have been shot by now.
There are two bad sides to this and one brighter side.
First if / when GM close their doors the compnents industry in the US will crumble. THis will intern make it difficult for ALL the other manufacturers in the States. Toyota are already considering mothballing their external factories and running purely out of Japan till the “Crisis” is over, this would just be the catalyst.
Secondly. although the greed of the UAW is a large portion of the problem I do feel for all those who would lose their jobs at this time.
The good side though is this time last year so many peopl on this site and others were vocally bragging at how Ford would be the first to go from here and the US, some of us blue bloods got howled down severly for saying anything contrary to that. Well guess what, “I TOLD YOU SO” :p
All these loans have simply been band aids to a huge problem.
GM has only itself to blame with so many brands/vehicles worldwide. The bigger you get, the harder you fall.
To top it off they haven’t exactly built the best and most reliable cars over the years which doesn’t exactly help their image right now. IMO They’ve built the cars which they thought people would want and not built what people actually need.
Other manufacturers knew that small and fuel efficient cars would be the future and the US makers totally ignored the signs and are now paying the price world wide.
As they say, you dig your own grave.
It amazes me that Chrysler didn’t have any small cars and will be resorting to rebadging FIAT’s in the USA soon after FIAT bought out a part of Chrysler. What was Chrysler doing all these years? Sleeping?
I just hope brands like Holden/Opel/Saab can make it and be sold to someone else if GM does go down. The rest of GM’s local brands are rubbish anyway.
Cheers
GM may survive is to go into chapter 11, it will allow them to restructure and wipe their hands of many debts and agreements they are currently getting pounded with.
The workers will get screwed over but the company may survive.
Well all i can say if you think youring going to go bankrut then just do it and stop wasting all those billions from the tax payers that money can be better used, And yes there will be lots workers out of work but its only for short time till every thing picks up again and were still going to need same if not more cars so the remaining car makers will end up taking all the sales left behind from gm and thay all will employ heaps more workers so it will all work out in the end
I hope Holden becomes a australian owned company.
No!!! Please no!!! Don’t go GM!!!
I myself am not a fan of General Motors, but it would be very sad if they shut down. So many people world-wide without jobs. I would also miss the competition GM has with Ford & Chrysler.
I think what a lot of people forget is that GM has been/was the benchmark for many many years. When you lose such a major piece of the automotive puzzle it lowers the amount of competition and consumers suffer.
In this case, most importantly, it’s the workers who suffer. Hundres of thousands of them in the USA alone.
Can’t believe that anybody would have happy to see a company who has had such a major influence on the automotive world for the best part of 100 years fall by the wayside.
if they shut down then it is good news 4 ford n chryler, less competition!!! if 1 dies it will help the others. of the 3 ford has the best prospects and i am not a ford man, i bass that on current range etc.
Will Holden still exist if General Motors goes?