GM has admitted in a government filing that its own auditor has found there is ‘substantial doubt’ about the company’s ability to survive.
“The corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern,” auditors for Deloitte & Touche wrote in the report.
GM made the disclosure in a filing with the Securities & Exchange Commission (SEC). The frank disclosure is potentially damaging as the company seeks to demonstrate that it is viable.
Under the terms of the US$13.4bn in federal loans GM has already requested, the Obama administration must determine that the company’s plans make it viable in the long run.
The GM filing disclosed that the Treasury already agreed to waive requirements that the automaker meet certain terms of the original loan agreement, including that it win agreement with creditors to convert two-thirds of its unsecured debt to equity by Feb. 17.
But the revelation that GM’s own auditors have ‘substantial doubts’ about survival could also cause problems with suppliers.
GM has also said it needs additional federal loans to stay in business.
GM has asked for up to US$16.6bn more in federal loans. In addition, it is seeking US$7.7bn in loans under an Energy Department loan program.
“The failure to obtain sufficient funding from the US government or governments outside the United States may require us to shrink or terminate operations or seek reorganisation for certain subsidiaries outside the United States,” the filing said.
“If we fail to obtain sufficient funding for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief under the US Bankruptcy Code,” GM added.