General Motors still has its plan to rebuild the company

General Motors still has its plan to rebuild the company

People who have been eager to bury General Motors grabbed their shovels Thursday after hearing that the company’s annual report to the U.S. Securities and Exchange Commission contained an auditor’s statement that a variety of business factors “raise substantial doubt about [GM’s] ability to continue as a going concern.” That’s all the grave diggers needed to hear.

We can guess that the usual suspects in Congress will be using the auditor’s report to justify their past and present attempts to force General Motors into bankruptcy. Meanwhile, the fact remains that General Motors is asking for loans that amount to only a small fraction of what has been handed out to the financial institutions that are largely responsible for the meltdown that brought commerce — including car sales — to a halt.

No real surprises

And here’s another fact. There wasn’t anything new or surprising in the inclusion of a “going concern” statement in GM’s annual report. It would have been surprising — indeed, it would have amounted to malpractice — if the statement hadn’t been there.

The challenges facing General Motors Corp. are no secret. And there was little in the report that wasn’t part of the record that GM executives submitted to Congress on Feb. 17.

The annual report to the SEC is required by law, and an accountant must certify the accuracy of the audit. If there is substantial reason to believe that conditions are such that the company might not be able to make it through the next year, the auditor is obliged to raise a warning flag.

Frankly, the language would be devastating if it had come out of the blue. A “going concern” warning could cause an increase in interest rates on outstanding debt and it could trigger some investment funds to sell off the company’s stock. But GM has already negotiated agreements with its lenders that will keep its interest rates stable through 2009, and the stock — again, no secret — had already taken a 87 percent hit in 2008.

GM’s action plan

But more than that, General Motors has presented its detailed plan to survive a recession and emerge as a competitive company in the automobile business. It is cutting costs, trimming payroll, eliminating divisions and closing plants, all the while continuing with its development of new products designed to appeal to a changing market.

Just one financial firm, AIG, has drained $180 billion from the U.S. Treasury and the Federal Reserve, including $30 billion approved by Fed Chairman Ben Bernanke the other day. There are a lot of questions about the specific use of bailout money in the financial sector, but there is little question that some institutions are so large and so interconnected that they cannot be allowed to fail. The ripples would be too great, not only for the U.S. economy, but the world economy. There is some debate over whether we are involved in a recession or a depression. The debate would be over if AIG went down the drain.

Likewise, the debate would be over if General Motors were allowed to fail.

The grave diggers should put away their shovels. The annual report, even with its “going concern” warning, was not a nail in GM’s coffin. It was an unfortunate legal necessity, and one that couldn’t be avoided, regardless of GM’s aggressive revival plan.

We’d all be better off had other auditors been as honest in examining other companies — going back to the Enron house of cards that was being built a decade ago and any number of financial entities that were loading up on toxic assets in recent years — as the auditors were about GM yesterday.