G.M. Loses $9.6 Billion
I know I gave you this link before, but I think this news warrants its own entry. GM reported a horrible fourth quarter loss. Here’s the New York Times link again: G.M. Loses $9.6 Billion; Wagoner Back in Washington
The loss is bad enough, but the truly eye catching number is the use of cash during the quarter. The company used $6.2 billion of its cash reserves, or a little over $2 billion a month from October through December.
It isn’t the red ink that worries me its that cash flow.
The auditors surely are now facing a huge dilemma. One of the bedrock questions an auditor has to ask themselves is whether the company’s whose books are being audited is a ‘going concern’. This is obviously crucial. The going concern test is designed to prevent managers burning through shareholder equity where there is no prospect of a return to profitability. In other words the question is now one of survivability and whether the basic business model being pursued by management is credible any longer.
Having been in that position I know that the ‘going concern’ discussion is a fraught one. Auditors have a fiduciary and legal responsibility to tell the shareholders when they think a company is no longer viable.
Those cash flow figures must prompt the discussion for GM’s auditors. At year end GM had about $14 billion of cash left. It is going through about $2 billion a month. There doesn’t appear to be an end to the cash drain without radical reorganization. Under normal circumstances those kinds of simple facts would cause the auditors to press the alarm button and the company would look for bankruptcy protection under Chapter 11. But this is GM. That’s a big failure. So who does the auditor call first? Not the GM CEO. He already knows the score. No, that first call goes to the Treasury Department. An the first question is: ‘how much more aid are you prepared to shovel into GM?’.
Because without that aid the company is dead. Now.
Bankruptcy is the only way to ‘save’ GM. It needs to reorganize and save its cash for restructuring. Right now it is spending cash on a useless and defunct business model. That’s a waste. Taxpayer money should only be used as part of a government financed bankruptcy and reorganization.
Meanwhile, those auditors have a heavy responsibility.
Make the call guys! You and I know GM is not a going concern any more.
