By Kendra Marr and Thomas Heath
Washington Post Staff Writers
Friday, March 6, 2009
General Motors laid bare its financial plight in a stark filing with the Securities and Exchange Commission yesterday and said its future depends on receiving further financial assistance from the government.
Without federal help, GM's auditor formally declared that there is "substantial doubt" that the cash-starved company can continue to operate on its own.
"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," the auditing firm Deloitte & Touche said in yesterday's filing.
GM is not asking for assistance from just the United States. It has requested aid from Australia, Canada, Sweden, Germany and Thailand, raising questions about the extent of government involvement in its operations down the road.
For the past two weeks, the Treasury Department's auto task force has been meeting with industry players daily to better understand the situation. Yesterday members met with advisers to an unofficial committee of 10 GM bondholders and with the top executives from Fiat, which might form an alliance with Chrysler.
"The task force on autos has been meeting around the clock to come up with a solution to this crisis," President Obama's press secretary Robert Gibbs said yesterday. "They continue to meet and are working towards what's likely to be a restructured and retooled auto industry in this country."
Ordinarily, a "going concern" notice from auditors would give the company's creditors the right to demand repayment of $6.1 billion in debt, the company said yesterday. However, GM said it had obtained waivers from its lenders giving it time to work out a deal with the Treasury.
GM submitted a restructuring plan last month that said it would cut 47,000 jobs worldwide this year and close 14 plants over the next few years. The company said it will focus on making "fewer, better" products (for instance, GM plans to spend $1 billion in reorganization costs after letting its Saab unit file for bankruptcy protection).
In yesterday's filing, GM said its future depends on successfully executing the restructuring 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 filing, GM warned of its troubles spreading to its suppliers. Auto parts suppliers are struggling to keep the lights on. GM said it had asked the auto task force to create a "credit insurance program" to guarantee up to $4.5 billion in payments to suppliers through 2011.
GM has received $13.4 billion in loans. It said it is seeking an additional $16.6 billion this year, and it has suggested that the Treasury could provide the money in exchange for preferred stock in GM, similar to how it has helped struggling financial institutions.
The government has not spelled out what concessions it would demand for further aid.
In 1979, the United States gave nearly bankrupt Chrysler a $1.2 billion loan that was tethered to concessions from creditors. The government also received warrants for Chrysler stock. When the automaker rebounded, taxpayers made money off the warrants.
Robert Weiner, a professor of international business at George Washington University, who teaches a course on privatization, said other governments have taken that strategy a step further by nationalizing or partially nationalizing their struggling car companies. Britain's Leyland, Renault in France and Germany's Volkswagen have had state ownership at one time, he said.
In each case, there is often a question of how the companies are to be managed.
"What's important is what the managers do -- the people who make the decisions on what to produce, what to charge, where to produce is what matters," he said. "You don't want a bunch of bureaucrats making those decisions. There is no reason the government can't hire professional managers to run General Motors."
For its part, GM said yesterday that it is focused on staying out of bankruptcy protection, which it has said would be devastating for its business, and could lead to liquidation.
The auditor's warnings about its financial stability had "no impact on the aggressive actions we are taking to restructure our business for long-term viability."