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DETROIT (March 5) - Of all the words in General Motors Corp.'s 402-page annual report, none is more jarring than two written by the company's auditors: "substantial doubt."

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The doubt, according to Deloitte & Touche LLC, is about whether GM can overcome its staggering losses and generate enough cash to stay in business, or remain a "going concern" as accountants would say.

GM concedes in the report filed Thursday that it's on the edge of bankruptcy and won't be able to avoid it unless it gets more government money and successfully executes a huge restructuring plan.

It's no surprise that auditors would question GM's viability. The Detroit-based behemoth lost $30.9 billion last year, is living on $13.4 billion in government loans, and is seeking up to $30 billion as it tries to survive the worst auto sales climate in 27 years.

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But the auditors' comments are serious because the threshold for raising such concerns is tilted heavily in favor of companies, and often they can negotiate them away, said John Pottow, a University of Michigan Law School professor who specializes in bankruptcy.

"If you get a qualified going concern audit letter like this, that suggests you are in extreme financial distress and very likely may file for bankruptcy," he said.

U.S. Sen. Charles Grassley, the top Republican on the Senate Finance Committee, said the auditors' concerns mean the government will likely have to provide more help to GM. The senator from Iowa called for a "restructured bankruptcy" involving the government.

"It would be a process of bankruptcy but be worked out outside of the court in mutual agreement to bondholders, stockholders, management, in this case, the federal government, because we've got a lot invested there, and also the unions," Grassley said in a conference call with reporters from his home state.

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Ray Young, GM's chief financial officer, said in an interview Thursday that GM can accomplish its restructuring goals without bankruptcy. The company is making progress in negotiations to swap debt for stock and to gain concessions from the United Auto Workers union, he said.

"One thing for certain is there's going to be recovery," Young said. "We just need to take advantage of this situation to streamline, downsize, get ourselves leaner, so that when the recovery occurs we will emerge as a far stronger company."

In its annual report filed with the Securities and Exchange Commission, GM also disclosed 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.

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GM shares, which lost 87 percent of their value in 2008, fell 34 cents, or 15.5 percent, to $1.86 Thursday.

Both GM and Chrysler LLC, which also has received government loans, face a March 31 deadline to get signed agreements for concessions from debtholders and the UAW to show the government they can become viable again. If they can't reach the necessary deals, the government could recall the loans and force the companies into bankruptcy protection.

GM bondholders planned to meet with the Obama administration's autos task force later Thursday, and members of the task force were scheduled to meet with GM and Chrysler executives in the Detroit area on Monday and tour their facilities, said two officials familiar with the plans. They spoke on condition of anonymity because they were not authorized to discuss the plans publicly.

Chrysler, which so far has received $4 billion in government loans and is seeking another $5 billion, likely will receive a "going concern" letter from its auditors, although it won't be made public because the company is privately held, Pottow said.

Ford Motor Co. has said it plans to make it through the industry's slump without government help. Ford lost $14.6 billion last year, but there were no warnings from auditors in the annual report the Dearborn company filed last month.

Even automakers like Toyota Motor Corp. are struggling as U.S. sales have fallen to the worst levels since December 1981, and auto sales worldwide are also depressed. Many analysts and automakers expect just over 10 million vehicles to be sold in the U.S. this year. That's almost 6 million fewer than in 2007.

Harlan Platt, a professor at Northeastern University in Boston who teaches corporate turnarounds, said the auditors' concerns don't mean GM is automatically headed for bankruptcy.

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 sales recover, Platt said.

"I think the government has forced the hands of everybody," he said. "In 18 months to 24 months, I anticipate they will be profitable, in the black - a mean and lean competitor that will be world-class."

The restructuring plan GM sent to the Treasury Department last month calls for the company to lay off 47,000 workers worldwide by the end of the year and close five more U.S. factories.

GM has said it wants to avoid bankruptcy protection because people would be reluctant to buy a car from a company they fear won't be around long enough to honor warranties or make replacement parts.

Young said the only financing available for bankruptcy would be the government due to frozen credit markets, and it would cost far more than the $30 billion in loans that GM is seeking. The worst-case bankruptcy scenario in GM's restructuring plan submitted to the Treasury last month would cost the government $100 billion.

Industry analysts have said the "going concern" doubts raised by GM's auditors may violate conditions of some of GM's loans that place them in default. But GM said in its report that it has received waivers of such clauses for its $4.5 billion secured revolving credit facility, a $1.5 billion term loan and a $125 million secured credit facility.

Associated Press Writer Ken Thomas in Washington, D.C., contributed to this report.

Copyright 2009 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

2009-03-05 06:33:05

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1195 comments

Pnutbutrjelyfish 07:06:40 PM Mar 08 2009

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GM might face tough times ahead, but Chevrolet will not. That's because Chevy is the breakfast of champions(Hot Rod, JC Whitney t shirts). Chevy for sure is funny car leader.

BlondeBuckeye55 08:31:43 AM Mar 08 2009

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Just keep filling your garages with the Foreign crap. Our ancestors worked hard to get "good pay" for hard work in these plants! Now they keep wanting us to take less and less. Wake up America, everytime you buy a foreign vehicle, most of the money goes to the foreign country it is run by. Just because Toyota and Honda are made here, doesn't mean that the $$$$ stays here. The people that work at these foreign plants have no retirement plans, when they(the company) decide they want to pack up and move.......you are gone with NOTHING! At least when you have a Union backing, you have some help* Our govt. should have NEVER let it get this far..........but here we are, nothing left for our children!

HCHEVY 08:34:41 AM Mar 07 2009

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Thankfully my garage is full of American made stuff. Truck,car, motorcycle and tools all made in USA.

HADKIL 06:08:19 AM Mar 07 2009

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The ignorance I am hearing is amazing. If it wasn't for most parents and grandparents working in union jobs, most of us wouldn't have the computers or education to have this conversation. The problem is not with the unions. The problem is with the american publics' obsession of materialism. The premise of me having what you can't, at any price, gives most a feeling of superiority. What has been lost in this thinking is pride. I'm proud to be an ameican. I support american business. You want to know why our auto industry needs our help ? Just open your garage and take that foriegn car for a ride.

Msteven229 07:01:34 PM Mar 06 2009

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American cars are WELL KNOWN for low resale value these 3 should not get another dime from the government they will learn no one wants their 5 year old technology low resale junk

HCHEVY 02:01:12 PM Mar 06 2009

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The foreign manufacturers must love reading this shit and see us fighting and putting our own people down. They don't have to lift a finger, just sit back and collect the profit. And profit they will all with our help.

Apple 420 11:46:51 AM Mar 06 2009

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GD MF'in unions. Shut the companies down and reorgnize with a little more sanity from the employees; and the top managment.

Coastal814 10:31:59 AM Mar 06 2009

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Pull out your checkbook and save GM. GM is asking for 30 billion dollars. The IRS received 135,257,630 returns from taxpayers. Do the math, each person in America filing a tax return should save the government the problem of bookkeeping and make a check out to GM for 221.80. When are you mailing your check?

HCHEVY 10:00:40 AM Mar 06 2009

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Robots don't take breaks or days off but they do break down and all the yelling and threatening in the world won't stop that. They also don't vote and they don't buy any of the products they help produce. But best of all, they don't bitch and complain about people and things they know little or nothing about.

HoustonFC 10:00:38 AM Mar 06 2009

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Bengal, you think every retiree is union? Not even close, a lot of people worked for the big 3 that were not part of the union and earned their retirement pension, LONG before all the corruption and mismanagement took place...and they worked for the car companies long before the governments had to bribe foreign manufacturers (with hundreds of millions of dollars in tax breaks) to build plants in their states...and FYI, some of those vaunted "foreign" plants down south do use UAW employees...so should we attack Toyota, Honda, BMW for being foreign or for using UAW workers to build their cars?

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