General Motors (GM) warned it could be liquidated through bankruptcy after its auditors voiced “substantial doubt” about the struggling automaker’s ability to stay afloat in an annual report released on Thursday.
GM is currently funding its operations with US$13.4 billion in emergency loans from the US government and said last month it will need an additional US$22.6 billion in government aid if it is to survive a collapse of global auto sales amid a deepening recession.
The US Treasury has not yet announced whether it would grant GM the additional loans and is reportedly considering whether the automaker should be restructured under bankruptcy protection.
“The administration is very mindful of the challenges in the auto sector,” Treasury spokesman Isaac Baker said. “Our team is working around the clock to develop the most thoughtful approach possible to the situation.”
The independent auditors concluded that GM’s “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,” GM said in the report filed with securities regulators.
The automaker cautioned in a statement that this assessment was “not unexpected” and “has no impact on the aggressive actions we are taking to restructure our business for long-term viability.”
A week ago GM warned of a “challenging” year ahead as it posted a US$30.9 billion loss last year, bringing the tally from four consecutive years of bleeding balance sheets to a whopping US$86.6 billion.
GM has asked the US Treasury for an additional US$16.6 billion and said it needs another US$6 billion from the governments of Canada, Germany, the UK, Sweden and Thailand.
GM warned in its report that it “could potentially be required to seek relief through a filing under the US Bankruptcy Code, either through a prepackaged plan of reorganization or under an alternative plan, which could include liquidation” if it is not able to obtain those loans.
The largest US automaker has repeatedly said it will likely be liquidated if it is forced into bankruptcy protection because consumers would be wary of buying its vehicles. In the restructuring plan submitted to the US Treasury last month, GM estimated it would need up to US$100 billion in government financing to restructure under bankruptcy protection.
Meanwhile, Japan’s key stock index dropped more than 3 percent to a four-month closing low yesterday after worries over GM’s fate and growing pessimism about the US economy dragged Wall Street sharply lower overnight.
The benchmark Nikkei 225 index tumbled 260.39 points, or 3.5 percent, to 7,173.10, the lowest since it closed at 7,162.90 on Oct. 27 last year. The broader Topix index fell 2.7 percent to 721.39, the lowest since Dec. 24, 1983, when it finished at 715.68.
“Taking a cue from Wall Street, investors dumped shares and their sentiment was really downbeat throughout the day due to uncertainty over the fate of GM,” said Masatoshi Sato, market analyst at Mizuho Investors Securities Co.
“Investors cannot really figure out what will happen to GM. If it goes under, investors are worried about its ripple effect on the auto industry, the US economy and the US stock market. They are worried that the impact of GM’s bankruptcy on the US economy will be massive,” Sato said.
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