Duh!: GM auditors raise doubts about carmaker's viability
DETROIT -- Although the "going concern" statement does little more than restate what GM itself had already said when it began asking for government aid last fall, the auditors' statement forced GM to seek waivers from its creditors on loan agreements and could pose a significant handicap to its suppliers when they seek loans.
GM's own debt covenants aren't affected by the statement because it already received waivers on its $4.5 billion secured revolving credit line. But their continuation is dependent on successfully executing its viability plan, which includes securing up to $30 billion in government loans.
"If we fail to do so for any reason, we would not be able to continue as a going concern and could … be forced to seek relief through a filing under the U.S. Bankruptcy Code," GM said in its annual report, filed with the Securities and Exchange Commission.
Industry watchers are worrying that the extra pressure on the supply base could bubble up and shut down the industry, says Center for Automotive Research Chairman David Cole.
"If you lose suppliers, that affects everybody," Cole says. "That has become a real serious concern."
Mary-Beth Kellenberger, an automotive analyst for Frost & Sullivan Consulting, says GM's going concern issues make it harder for cash-strapped suppliers to get loans. Banks are taking a hard look at suppliers' customer rosters to see how exposed they are to GM.
"Why would a bank or an angel investor want to invest in a technology that is going to end up in GM vehicles if that vehicle may or may not end up in the marketplace?" she said.
But Brad Coulter, a director at consultant O'Keefe and Associates, says the auditor statement doesn't change things that much. Most banks and investors were already aware that GM is a risky business.
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