GM auditors doubt it can avoid bankruptcy

by Frank James

More bad though unsurprising economic-related news this morning. General Motors is verging on bankruptcy, according to its auditors. The information is in the car makers latest annual report filing with the Securities and Exchange Commission.

An excerpt from the Associated Press:

DETROIT (AP) -- General Motors Corp.'s auditors have raised "substantial doubt" about the troubled automaker's ability to continue operations.

The company revealed the concerns, raised by the accounting firm Deloitte & Touche LLP, in its annual report filed on Thursday.

GM 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.

GM says in its report that its auditors cited recurring losses from operations, stockholders' deficit and an inability to generate enough cash to meet its obligations in raising substantial doubts about its ability to continue as a going concern.

The company said in its filing that its future depends on successfully executing the viability plan submitted to the government in February to justify the loans.

"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," GM said in the annual report, filed with the U.S. Securities and Exchange Commission.

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.

The company is essentially saying that everything from hereon in must break just right for GM if it's to not be thrown into bankruptcy court. That seems like a fairly tall order at this point.

The question for Washington policymakers is, given how tenuous GM's auditors are saying its future is and how many factors must line up exactly right, how much more taxpayer money should the Obama Administration and Congress funnel into the company?

The problem is, if GM doesn't receive future financial help from the federal government and governments abroad, that essentially assures it will need to seek bankruptcy protection sooner rather than later. But it may be only staving off the inevitable.

In short, GM and American taxpayers may be damned if they do and damned if they don't.