Detroit: 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 US 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.
GM also disclosed on Thursday that Chief Executive Rick Wagoner received a pay package worth $14.9 million in 2008, although $11.9 million of his compensation was in stock and options whose value plummeted to $682,000 as GM’s share price sank.
GM shares, which lost 87% of their value in 2008, fell 38 cents or 17.2% to $1.82 in afternoon trading Thursday.
The automaker 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 31 March 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 17 February 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 US factories.
GM said in its filing that its future depends on successfully executing the plan.
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.
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.
US auto sales in February dropped to the lowest level since December 1981. Last year, automakers sold 13.2 million vehicles in the US, 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 said in a statement that the auditor’s opinion would not affect its restructuring plan.
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 bankruptcy reorganization 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 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.
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.
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.