GM’s auditors have looked at the books and made their determination: “our recurring losses from operations, stockholders’ deficit and inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern.” The filing with the SEC is refreshingly blunt, in a carefully coded way. “Sales volumes may decline more severely or take longer to recover than we expect . . . and if they do, our results of operations and financial condition and the success of the Viability Plan will be materially adversely affected.” I wonder how many billions of dollars lie between the terms “affected,” “adversely affected” and “materially adversely affected.” The Detroit News finally makes the transition from cheerleader to smokin’ hot crime scene investigator—at least for this piece.
The Detroit automaker almost ran out of money in December before winning commitments of up to $13.4 billion in federal loans. GM said last week it needs up to $16.6 billion more to survive the weakest sales market since the early 1980s, including $2 billion this month to avoid bankruptcy.
GM ended the year with $14 billion in cash, securities and readily available assets — about $3 billion more than the minimum amount it needs to pay bills.
The automaker, which has lost about $82 billion in recent years, is implementing a broad cost-cutting plan aimed at becoming a viable company and repaying the federal loans.
GM is eliminating 47,000 jobs this year, shuttering 14 plants by 2012 and selling, shrinking or killing its Saturn, Hummer, Pontiac and Saab brands. Saab filed for reorganization last Friday in the Swedish equivalent of a Chapter 11 bankruptcy.
GM also is forcing most of its U.S. salaried workers to accept temporary pay cuts.
And the good news is . . . Rick Wagoner has taken a pay cut! Story to follow.
Just caught it on CNN headline.OH…OH.This don’t sound good.
Just read the AP story on Yahoo.
I’m so confused now. According to GM everything is going great. Loosing 55% of their sales is exactly where they want to be. The creditors don’t think GM can make it. They do not have the business model to go on.
Who do I believe?
DIP-shit takes on a new meaning; I think the pre-pack just got a new life. Can PIMCO be forced to take a cram down in that scenario?
This is the Big One, Elizabeth.
robert your date was 31 of this month. I must say it’s looking fairly randy for you right this min.
1: No surprise…TTAC has been saying this for…Years?!?!?
2: You’re going to hear a lot of these notices within the Domestic Automotive Industry over the next few weeks and months because sales figures and ‘the numbers’ are so bad. The supplier world will soon be sending out a flurry of these notices-the ones not currently already in C11 that is.
3: Some of these notices will be very real…some of these are posturing to convince Uncle Sugar to use a bigger Sugar Scoop.
Bad things happen when a company manufactures lousy products and mistreats customers. Who knew?
What legal recourse is available for those who now take a material decision based on an audit sign-off? Didn’t some auditors go to jail and audit firms go out of business with this sort of Enron-esk audit fraud?
I am very confused.What does this mean?Is it posturing?GM and the CAW started talks today this
info should shake things up at the table eh?
I’m looking forward to read some of our more informed B&B comments.Help an uneducated retired autoworker guys.Share we us,what this means in the real world.
What did the auditors say last year?
Beware the Ides of March…
It is really strange that the early morning futures markets are down on this news. Theorists tell us that all known information is already priced into a security. Everyone who is paying attention knew that the auditors were almost surely going to issue a going concern warning, and GM has been telling us for months now that they are on the brink of collapse.
How can this non-news news move the markets? Ah, because the theorists are wrong. Markets are not rational. What does that say about “trust the markets” as a political-economic belief system? Perhaps markets are the best of a bad lot, much like Churchill said about Democracy: “Democracy is the worst form of government, except for all those others that have been tried.”
Pic – Tip of the iceberg, lol. Yes I just lol’d so what!
I am not feeling schadenfreude so much as a sense of relief. That light at the end of tunnel is coming closer and we can finally get out of this damn tunnel. I really want GM and Chysler to go into bankruptcy and just get it over with, so we rid this industry of some of the stink of death. Think about the lawyers in this bankruptcy as the maggots they are. Eating only the necrotic flesh from these leporous patients. With a new GM (and maybe Chysler), we can go forward with a stonger, slimmer company that isn’t stumbling all over itself.
Meh.
Who in their right mind didn’t already know this?
Finally….the TRUTH comes out! What the hell took so long?
Oh, I forgot….they needed to suck that last little bit of milk ($) out of the government teet.
“The ship is going to suck us down. Take a deep breath when I say. Kick for the surface and keep kicking. DO NOT let go of my hand.”
I am very confused. What does this mean?
The auditors have done the books, and determined that the numbers are bad enough that the business could fail.
In theory, accountants objectively review the data and compile an audit based upon it. In the real world, management negotiates with the accountants in order to blunt negative comments and to present things as positively as possible.
A going concern opinion is a very big deal. It means that the numbers are so bad that the opinion can’t be negotiated away, even though the client might be tempted to switch accountants. At this point, GM doesn’t have any leverage to negotiate this thing away.
How can this non-news news move the markets? Ah, because the theorists are wrong. Markets are not rational.
Over the past 12 months, during a period when the Dow fell 42%, GM stock fell 90%.
Most of the bad news was already baked into the stock price, but not all of it. Which is fair enough; a going concern opinion seemed likely, but the odds of it weren’t 100%, so the price didn’t reflect 100% certainty, either. Still, if investors were so thrilled with GM, it wouldn’t have fallen at more than double the pace of the market as a whole.
To look at it another way, of the stock value lost over the past year, about 1-2% of it came from this opinion (at least for now). When viewed as part of an overall trend, the news is obviously not that surprising.
This is all to the good. The worse it gets, the easier, and closer to mandatory, it will be for the Feds. to push GM into a prepack, dump Wagoner and possibly get some rational management involved. Some segment of GM will survive. The impact on joblessness is going to be huge and devastating to suppliers. I think one of the outs Mulally left himself was the event of a BR for GM which would take down the suppliers and thus Ford. To me, the best case is that GM and Ford go into BR with one well managed company coming out with a viable structure and capable management.
Wagoner will walk tall and proud as he leaves assured that he did the best anyone could do in an impossible situation. I suppose he’ll be just a little disappointed as the phone doesn’t ring with offers to ‘manage’ other companies and the top universities somehow overlook the wealth of insights he’d be able to impart. But he’ll get a book contract. Hopefully the NYT will review it as fiction.
Wow this is bad, a report like this will surely show the government that GM is in dire straits and needs some extra money to help prop it up.
@pch101 Thank you, as I understand this the auditors call it like they see it.Great info thanks again.
GM spokespeople were learning from the politicians they go to with their tin cup. Today it is that this report was dated Dec 31 not today. Now this is interesting, since today is worse than Dec (if that’s possible). If Uncle Sam would have stayed out, it would be over by now. If we can demand that bankers who have wrecked banks must resign, what about Wagoner and company? If this is about Wagoner’s legacy, it’s already written. Do we the taxpayers pay the lawsuits that are going to start in state courts, about Saturn and Hummer dealers being unjustly deprived of their franchises? I hope not. Isn’t it interesting that both the major banks and the Detroit crowd say essentially the same thing. We have failed, but we are too big to fail, so would the rest of the Country please come in and pick up our broken pieces, or we will walk away and wreck the American economy. These are true patriots.
The auditors aren’t giving a “going concern” rating, they’re saying GM might not continue as a going concern.
concern: an organization or establishment for business or manufacture.
A going concern rating would be a good thing as it would mean business is expected to continue into the foreseeable future.
In the above linked Detroit News article:
“The auditors’ conclusion was not unexpected. GM signaled last week that it would receive a “going concern” opinion from auditing firm Deloitte & Touche LLP, which was paid $38 million to audit GM’s annual consolidated financial statements and provide other services.”
Why in the world does the Detroit News mention what the audit cost?
I can’t be sure, but I tend to think that the subtext is “GM paid those damn accountants $38 million and those damn accountants couldn’t write something nicer about them?”
Dammit, Enron ruined bribing accountants for everyone.
To clear up any confusion, the “Going Concern” ruling by the auditors means that it is questionable, in the auditor’s opinion, whether the company will continue as a going concern.
It is normally assumed that a corporation is going to continue as a going concern, so the “This Company May Not Continue As a Going Concern” ruling is abbreviated as a “Going Concern” ruling.
Where’s the fat lady? It’s time for her curtain call. Oh, she’s busy spritzing her throat, okay.
Meanwhile once Uncle Sugar gets done raping the 100 million or so of us who actually work to put money INTO the US economy, giving away tons and tons of money to epic FAILURES of all shapes, sizes and descriptions – you’ll be hearing lots more caterwailing. From pain.
This is, as said earlier, written in code. What they are saying is that GM:s proposed wiability plan is a crock of shit. And if GM doesn’t take into account real numbers of declining sales, GM is headed for bankruptcy. As I get it, it can not be written any clearer in accountant-speak. If I were the accounting firm, I would accept pay in advance.
I just hope that Mr. Wagoner comes out of this whole mess in good shape. He’s worked so hard.
OK just kidding there. Actually I’m surprised that one of the laid off/downsized folks hasn’t capped the guy yet, since he played a huge part in ruining thousands of lives.
I love the MSNBC headline for this news item: “Concerns raised that GM will not survive.” It makes it sound like the auditors are the first ones to suggest that GM is in BIG trouble. I guess I shouldn’t be surprised, though, since the MSM has only developed an interest in the auto industry in the last few months.
GM needs to die. It’s the only way to save Ford and Chrysler. We can make out with two automakers. We don’t need three.
Hey ingvar and no_slushbox, did you two work together on your joke?
A “GOING” Concern, and a Crock of “Shit?”
Ha, ha, I get it.
What they are saying is that GM’s proposed viability plan is a crock of shit.
To be fair, that’s not really it. The auditor isn’t really evaluating the various turnaround plans, so much as it is looking at present conditions and determining whether the numbers as of the date of the audit show that the company is in trouble, assuming that things remain as they are.
Auditors are financial historians, not business analysts. The turnaround plans aren’t going to work, but I wouldn’t use this opinion to judge the plans. There’s plenty of other evidence to suggest that the plans are going to fail.
With the help of incentives, Chrysler boosted its market share in February to 12.2%, one of the highest levels in the last two years. In January, its market share was 9.5%. GM’s share fell to 18.3%, one of its lowest levels in decades, from 19.5% in January. Ford’s rose to 14.4% from 14.2% the previous month.
GM’s share sliding under 20% is catastrophic for them. Their infrastructure cannot support that low a marketshare. The auditors know this as well as anyone.
“To be fair, that’s not really it. The auditor isn’t really evaluating the various turnaround plans, so much as it is looking at present conditions and determining whether the numbers as of the date of the audit show that the company is in trouble, assuming that things remain as they are”
I beg to differ. As anyone that has to tell the king that he is naked, it has to be done carefully so. If one analyzes what is really said, it becomes obvious:
“our recurring losses from operations, stockholders’ deficit and inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern.”
= “If we continue to bleed as we have done, it’s not going to be just another flesh wound. We will bleed to death.”
“Sales volumes may decline more severely or take longer to recover than we expect ”
= “Managements numbers are way, way too optimistic. Reality has to be taken into account. For sure. A real, real, worst case scenario.”
“and if they do, our results of operations and financial condition and the success of the Viability Plan will be materially adversely affected.”
= “And if management doesn’t hit Planet Reality real soon and take the numbers for what they are, the Viability Plan isn’t going to be worth more than the paper it is printed on.”
Or in short: The accountants believe the viability plan is a crock of shit.
The accountants believe the viability plan is a crock of shit.
The point remains that it doesn’t really matter what the accountants believe will happen. Even if a turnaround plan was terrific, they are not in a position to properly evaluate it. Their expertise is in compiling historical data and presenting it in an approved format, not in assessing whether a business is well managed or a good investment.
There is no shortage of rotten failing businesses that never have a going concern opinion issued, and they’re inevitably late in the game if and when they do issue them.
The moral of the story is to not trust auditors with judging the viability of a company, because they aren’t particularly good at it and because they maintain conflicts of interest that keep them from trying very hard. You can expect them to tell you what has already happened, but not what is likely going to happen.
Finally happened, though it took WAY longer than I expected, this is the coup de grace…GM stock below Ford’s, and sliding…..
This turd is finally circling the drain….
If they had put together a decent packaged C11 3 months ago, (they had the chance!) this would be a “yeah, we knew it was coming” moment.
Now, it sounds like the beginning of the death rattle….
Auditors, post-Enron, are very conservative and circumspect about financial matters of their clients. (I know, I used to be one.)
It is good to see, in plain English, in the MSM, someone finally tell the emperor his clothes are not there.
If the auditors hadn’t said it, we would still be listening to some Wagoner flunkee’s daily spin.
So what happens to the Credit Default Swaps?
This is the Big One, Elizabeth.
Comin’ to join ya, AMC!
John
The Titanic was a model of calm and organization compared to General Motors today. It even with down with a modicum of dignity.
I guess someone got my Jack Dawson quote from Titanic…. :)
At this point, GM’s future has nothing to do with car sales, business models, or sane accounting. It has everything to do with President Obama, who is in a very difficult position.
Here’s why:
1. Even doubling GM’s vehicle sales can’t save it, because that would take them back to the ‘good’ old days of 2007, a year in which they lost $10B if memory serves correctly. They would need to maybe triple sales and further reduce costs to achieve any hope of solvency.
2. The President has come out solidly in favor of saving GM. The UAW needs GM to remain solvent, and the union supports the President.
3. The accountants are basically saying “iceberg, straight ahead!”. Public sentiment is against saving GM because it is a black hole for taxpayer money. Further bailout promoted by the President has little upside, except temporary joy from GM employees.
4. GM’s ultimate demise will cost the President politically, because it will mean he didn’t do enough to save them. Pouring more billions into GM costs the President politically, because most of the public doesn’t support doing so.
If you use the Titanic analogy, then please do so correctly.
We’re not in an Iceberg-ahead-scenario anymore. We’ve hit the iceberg a long time ago.
What’s happening now is that captain Wagoner still tries to fix the damage instead of sending out an SOS.
In this analogy, the bailout equals the bulkheads which are supposed to stabilize the ship and ensure a safe voyage to the harbor, where GM can then be repaired.
Unfortunately, the damage to the hull is too big, so all the bulkheads do is to postpone the inevitable. Too much water enters the ship and will eventually push it down, so that the water can easily flow over the bulkheads and finally claim the ship anyway.
GM should have seen that iceberg decades ago, but they didn’t even bother to look ahead. The first time they’ve actually noticed it was after September 11. But instead of reacting, they simply turned up the music/incentives a little bit and kept on dancing.
By 2005, an impact was imminent, but instead of immediately reversing the engines, GM actually accelerated, because they were afraid that they could lose the blue ribbon for being the largest auto manufacturer to Toyota.
And after all, everybody knew that GM was unsinkable (too big to fail is the word I guess).
Now it’s too late, and only when GM finally sends out an SOS (Chapter 11), the Carpathia (Post C11 GM) can come and rescue the survivors. This ship is not as big or luxurious as the Titanic, but at least it’s fit to reach New York (post recession future).
In the words of that economic genius George W. Bush, “This sucker’s going down.”
As I said earlier, “Finally.” I was raising this issue two years ago. I was sure GM’s auditors were fretting about the “going concern” assumption. After all, GM already had negative equity and was continuing to lose money, cash and market share. Not much to support a happy prognosis, eh? And I’m sure the “going concern” evaluation is part of the auditors checklist, just as it was when I was in that biz.
The Enron fiasco and tougher laws on auditors (and management) remind us that though outside auditors are paid by those they audit (and would like to continue getting the fee) but they are supposed to be “independent,” i.e., they are expected to serve the interests of investors and creditors. It’s called a fiduciary duty.
You can think of GM’s situation this way: a guy with a bad heart, blood pressure over the moon and terminal cancer wants to buy life insurance. The insurance company requires the guy to get a physical. The doctor is a longtime friend of his client, but his desire to help the guy buy insurance is overriden by the fact the life insurance will sue the doc’s socks off if he puts a happy face sticker on the medical report.
Richard Chen :
What did the auditors say last year?
Richard, we covered this in my Financial Accounting course for my MBA Tuesday night. In their opinion statement of the 10-K, the auditors (D&T) did not make the statement last year because they had no reason to believe GM would not be a going concern in the UPCOMING year. They were right… GM was still in business on December 31, 2008.
Regrettably, the main outcome of this dose of reality will be GM rattling their tincup more vigorously…and probably being indulged ‘one’ more time.
GM is obviously in trouble in a most difficult time. ALL business is way down. We have a clueless buffoon in the White House. Consumers are worrying about so many other things than their next new car.
Followup:
“Under pressure to demonstrate their viability in order to qualify for more government loans, General Motors and Chrysler couldn’t produce any additional evidence on Tuesday. If they were taking physical exams, they both would have flunked.”
http://www.time.com/time/business/article/0,8599,1882939,00.html
“GM running on fumes, auditors warn”
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/05/AR2009030500526.html
@ Bridge2far
We have a clueless buffoon in the White House.
As opposed to the idiotic embarrassment you did have for a miserable 8 years or could have had (Palin)?
(Happy to have this post purged along with Bridge’s if necessary).