Going Concern? GM Report Sounds Like Going, Going, Gone

GM was wildly successful if it hoped to scare everybody with its annual report filed March 5.

GM’s accountants, Deloitte & Touche LLP, cast a pall over GM by stating the obvious, that there is reason to doubt GM’s ability to continue as a “going concern.”

The topper is a statement in the 2008 GM annual report that even if GM gets everything it’s asking for: up to $30 billion in U.S. government funds, $6 billion from foreign governments, forbearance from is bondholders, and agreement with the UAW, GM could still go bankrupt, fundamentally because demand is so low.

The annual report also says that one of GM’s risks is that GM is in so much government debt. That’s right, the risk of GM going bankrupt is higher in part because GM took on so much debt trying to avoid going bankrupt.

That’s like the old joke about the guy who asked for a light sentence for killing his parents, on account of the fact that he was an orphan.

Some observers suggested the scary report could be a useful negotiating tactic, to frighten GM’s bondholders, the UAW and other stakeholders into going along with GM’s radical restructuring and downsizing. An article in The New York Times today touches on that aspect of the report.

I doubt that’s so, or at least not entirely so. If it is, GM overdid it. The report is so dire, so scary, it makes GM’s bankruptcy appear all but inevitable.

GM responded with a statement that said in part: “The auditor’s opinion has no impact on the aggressive actions we are taking to restructure our business for long-term viability.”

The company insisted it still expects to recover. “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,” GM said.