GM on 'brink' of bankruptcy

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.
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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.