Friday, November 11, 2005
http://www.detnews.com/2005/autosinsider/0511/13/A01-379282.htm Wall Street bets against GM
Some analysts fear restructuring can't keep company from sliding into bankruptcy as stock hits 13-year low.
By Brett Clanton / The Detroit News
Raising the 'B' word
Some Wall Street analysts are saying General Motors will have to seek bankruptcy protection within two years. What do you think is the likelihood that GM will go Chapter 11 by 2007?
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GM's stock
DETROIT -- Wall Street's confidence that General Motors Corp. Chairman and CEO Rick Wagoner can restore the company and avoid bankruptcy down the road is evaporating -- quickly.
GM shares slid 4.5 percent Thursday to their lowest level since October 1992, the month the automaker's directors ousted then-Chairman Robert Stempel in a historic boardroom coup.
Wagoner's job may not be immediately at risk, but the pressure is building amid a string of negative developments. The latest hit came Wednesday when GM said it would restate its earnings for 2001 because an accounting error led it to overstate its 2001 profit by up to $400 million.
The filing with the Securities and Exchange Commission comes as the company remains the subject of an SEC investigation into its accounting practices for pensions and other retiree benefits.
While some Wall Street analysts downplayed the significance of the filing, others said it could be symptomatic of larger problems at GM.
"We believe the odds GM management could be held accountable for accounting errors has gone up and this could accelerate a bankruptcy protection decision we think is inevitable," Banc of America's Ron Tadross said in a report Thursday. He said there is a 40 percent possibility that the company will file for bankruptcy in the next two years, up from 30 percent before Wednesday's disclosure.
GM spokesman Jerry Dubrowski said speculation of a GM bankruptcy is inappropriate and doesn't reflect the predominant view on Wall Street. "We have no plans to declare bankruptcy, and we don't think it's appropriate to continue to comment on what I would term sensational speculation by some observers," he said.
GM has reported four consecutive quarterly losses for the first time in more than a decade. So far this year, the automaker has racked up more than $4 billion in North American losses in the face of flagging demand for its gas-thirsty SUVs, heightened foreign competition and mounting health benefit and pension obligations.
Fitch Ratings credit ratings agency lowered GM's debt deeper into "junk" status Wednesday, a move that will make it more costly for the automaker to borrow money.
GM's shares have lost more than 14 percent of their value this month, and its market value has slid to $13.3 billion -- now one-twelfth of Toyota Motor Corp.'s $164 billion market value.
Major shareholders like Las Vegas billionaire Kirk Kerkorian -- who owns 9.9 percent of GM -- are taking a huge hit and could start pushing for change.
The biggest risk for GM may be the volatile situation at Delphi Corp., GM's biggest parts maker.
Troy-based Delphi, which filed for bankruptcy Oct. 8, has demanded deep wage and benefit concessions from the labor unions representing its 33,000 U.S. hourly workers. Without some concessions by mid-December, Delphi said it will petition the court to reject its labor contracts, a move that could prompt a strike by early 2006 -- and choke off a key part of GM's supply chain.
GM could also be on the hook for several billion dollars in liabilities for former GM hourly workers now with Delphi.
"Until these issues are resolved, we believe (GM's) stock has the potential to trade into uncharted territory," Lehman Brothers analyst Darren S. Kimball said in a report.
The parade of bad news has overshadowed a landmark deal between GM and the United Auto Workers last month, which will save the automaker $1 billion a year in health care costs and wipe clean billions of future retiree benefit obligations. It also has taken the focus off of GM's upcoming cars and trucks that are meant to dig GM out of a slump.
As GM's financial troubles mount, more investors are expressing doubts about the automaker's top management.
"We believe the restatements and related SEC investigations hurt management credibility and create another distraction as North American operating challenges mount," Goldman Sachs analyst Robert Barry said in a report.
In the filing, GM said its 2001 earnings were overstated by about $300 million to $400 million, but the final amount hasn't been determined. The automaker said the overstatement was related to how it booked certain supplier credits.
GM also said it overstated earnings in the second quarter of this year after it inflated by 57 percent the value of its 20.1 percent stake in Japanese automaker Fuji Heavy Industries Ltd., a stake it sold in October to Toyota. The error means that GM's loss in the second quarter was greater than it appeared at the time.
GM plans to issue the restated earnings for 2001 and any subsequent years, along with updated second-quarter figures before it issues its 2005 report next year.
"This is clearly a bad situation but maybe not as bad as it originally appears," Deutsche Bank's Alexis Boyer said in a Thursday report, about the 2001 accounting errors.
GM's Dubrowski made a similar point Thursday. "At the end of the day, this involves a timing issue on some supplier credits as to when they are booked. And we are taking the appropriate steps to book them in the appropriate periods."
Also on Thursday, GM's hourly UAW workers were wrapping up voting on the new plan for health care costs. The UAW said it expects to announce the results today. Several UAW locals already have approved the deal, which will increase out-of-pocket health costs for retirees. The deal also would require GM hourly workers to contribute $1 per hour in future pay increases.
Mike Sheridan, the president of UAW Local 95 in Janesville, Wis., said his members voted for the proposal Thursday. Sheridan said the proposal will cost his 3,800 workers around $2,000 a year, but they want to help retirees.
"They paved the way for us; they made sure we had the benefits we have now," Sheridan said.
Detroit News wire services contributed to this report. You can reach Brett Clanton at (313) 222-2612 or bclanton at detnews.com.