How do you misplace $2B?
GM loss hits shares, credibility of management
Friday March 17, 10:52 AM EST
By Poornima Gupta and Kevin Krolicki
DETROIT (Reuters) - General Motors Corp. (GM) shares and bonds fell on Friday after the automaker increased its 2005 loss by $2 billion due to accounting errors, raising questions about the company's management and renewing doubts about its long-term survival.
Late Thursday, GM said its 2005 loss was $10.6 billion, including new charges related to job losses, its finance arm, GMAC, and the bankruptcy of former subsidiary Delphi Corp. (DPHIQ).
GM also said it would delay filing its annual report and would restate results for the years 2000 through 2004 after mistakenly accounting for cash flows from a mortgage unit. It also said it had incorrectly accounted for certain supplier payments, including those from Delphi, and vehicle leases.
"This seems to fit into a pattern of aggressive accounting by GM throughout the organization," Mark Altherr and Natasha Tsiouris, analysts with Credit Suisse Research, wrote in a note to clients. "One can assume that the accounting staff does not take a conservative approach to timing or cash flow allocation."
Analysts said the accounting problems, combined with the delay in filing its annual report, further tarnish GM's reputation with investors, already wary of the automaker's eroding market share and high labor and benefit costs.
"Is this another blow to management? I would say yes," said Kevin Tynan, an analyst with Argus Research. "But you can't say management was on very steady ground in the eyes of investors."
JPMorgan analyst Himanshu Patel said the multitude of accounting errors raised concerns about the company's internal accounting controls.
PRESSURE ON WAGONER INCREASES
The Detroit-based company, which remains the world's No. 1 automaker by revenue but ranks No. 8 by market value, has been slashing costs and cutting capacity as it adjusts to market share losses to Asian rivals in its core U.S. market.
The accounting problems come as GM tries to sell a majority stake in GMAC, potentially complicating that effort to raise cash and raise the credit rating of its finance arm.
Some auto industry analysts said pressure was mounting on GM Chairman and Chief Executive Rick Wagoner, who rose to the helm of the company in 2000 and took over control of its struggling North American unit in April 2005.
Wagoner also faces heightened concern on Wall Street that GM could be headed for an eventual bankruptcy, in part to cut labor-related costs that have sapped profitability.
Peter Morici, a professor at the University of Maryland business school, said there was no reason to believe that Wagoner and his management team could turn GM around.
"Absent change, GM will run out of cash and go bankrupt. I do think Wagoner has got to be replaced. I had not got to that point until now," Morici said.
Said Tynan, "If this company has to go on, it has to go all the way down to the ground and come up."
GM officials were not immediately available for comment.
GM shares were down 81 cents, or 3.65 percent, at $21.41 in morning trade on the New York Stock Exchange, erasing two days of gains.
GM's benchmark 8.375 percent bonds due in 2033 fell to 73.2 cents on the dollar, down from 75.3 cents late on Thursday, MarketAxess reported.
GMAC's 8 percent bonds due in 2031 fell to 93 cents on the dollar from 95.4 cents on Thursday, according to MarketAxess.
GM loss hits shares, credibility of management
Friday March 17, 10:52 AM EST
By Poornima Gupta and Kevin Krolicki
DETROIT (Reuters) - General Motors Corp. (GM) shares and bonds fell on Friday after the automaker increased its 2005 loss by $2 billion due to accounting errors, raising questions about the company's management and renewing doubts about its long-term survival.
Late Thursday, GM said its 2005 loss was $10.6 billion, including new charges related to job losses, its finance arm, GMAC, and the bankruptcy of former subsidiary Delphi Corp. (DPHIQ).
GM also said it would delay filing its annual report and would restate results for the years 2000 through 2004 after mistakenly accounting for cash flows from a mortgage unit. It also said it had incorrectly accounted for certain supplier payments, including those from Delphi, and vehicle leases.
"This seems to fit into a pattern of aggressive accounting by GM throughout the organization," Mark Altherr and Natasha Tsiouris, analysts with Credit Suisse Research, wrote in a note to clients. "One can assume that the accounting staff does not take a conservative approach to timing or cash flow allocation."
Analysts said the accounting problems, combined with the delay in filing its annual report, further tarnish GM's reputation with investors, already wary of the automaker's eroding market share and high labor and benefit costs.
"Is this another blow to management? I would say yes," said Kevin Tynan, an analyst with Argus Research. "But you can't say management was on very steady ground in the eyes of investors."
JPMorgan analyst Himanshu Patel said the multitude of accounting errors raised concerns about the company's internal accounting controls.
PRESSURE ON WAGONER INCREASES
The Detroit-based company, which remains the world's No. 1 automaker by revenue but ranks No. 8 by market value, has been slashing costs and cutting capacity as it adjusts to market share losses to Asian rivals in its core U.S. market.
The accounting problems come as GM tries to sell a majority stake in GMAC, potentially complicating that effort to raise cash and raise the credit rating of its finance arm.
Some auto industry analysts said pressure was mounting on GM Chairman and Chief Executive Rick Wagoner, who rose to the helm of the company in 2000 and took over control of its struggling North American unit in April 2005.
Wagoner also faces heightened concern on Wall Street that GM could be headed for an eventual bankruptcy, in part to cut labor-related costs that have sapped profitability.
Peter Morici, a professor at the University of Maryland business school, said there was no reason to believe that Wagoner and his management team could turn GM around.
"Absent change, GM will run out of cash and go bankrupt. I do think Wagoner has got to be replaced. I had not got to that point until now," Morici said.
Said Tynan, "If this company has to go on, it has to go all the way down to the ground and come up."
GM officials were not immediately available for comment.
GM shares were down 81 cents, or 3.65 percent, at $21.41 in morning trade on the New York Stock Exchange, erasing two days of gains.
GM's benchmark 8.375 percent bonds due in 2033 fell to 73.2 cents on the dollar, down from 75.3 cents late on Thursday, MarketAxess reported.
GMAC's 8 percent bonds due in 2031 fell to 93 cents on the dollar from 95.4 cents on Thursday, according to MarketAxess.
