Accounting error prompts GM to restate earnings

$300 million U.S. profit mistake Final correction could be higher

DETROIT— General Motors Corp. said yesterday it plans to restate its earnings from 2001 because an accounting error led the company to overstate its earnings by up to 35 per cent.

In an unrelated action, Fitch Ratings lowered GM’s debt deeper into ‘‘ junk” status and the auto maker’s shares tumbled to a 13- year low.

In a filing with the U. S. Securities and Exchange Commission, GM said its 2001 earnings were overstated by approximately $300 million ( U. S.) to $400 million, but the final amount hasn’t been determined. GM plans to issue the restated earnings for 2001 and any subsequent years before it issues its 2005 annual report next year. The world’s largest auto maker said it has been conducting an internal review of credits received from suppliers, an issue also being investigated by the SEC. The review indicates GM erroneously booked the supplier credits as income in the year they were received rather than to future periods, GM said. GM filed its statement after the markets closed yesterday. The audit committee of GM’s board warned investors not to rely on GM’s financial statements for 2001.

Fitch downgraded GM’s issuer default and senior unsecured debt ratings to BB( plus) from BBB. The ratings agency said it was concerned about the costs GM might incur as its former parts division, Delphi Corp., restructures in bankruptcy court.

Fitch didn’t lower the rating for GM’s finance arm, General Motors Acceptance Corp., because GM announced last month it wants to sell a controlling interest in GMAC to a strategic partner. Fitch said it will consider lowering GMAC’s rating if GM doesn’t make progress on that sale in the first quarter of 2006. GM has said it could be liable for up to $ 12 billion for benefits for Delphi employees as part of the supplier’s restructuring. Besides that financial burden, Fitch said GM also is at risk if Delphi and its unions fail to agree on wages and benefits.

“ A labour disruption at Delphi for any extended period would have an immediate impact on GM’s ability to operate and would quickly reduce liquidity,” Fitch said. GM had $ 19.2 billion in cash as of Sept. 30, Fitch said. The company has $ 31 billion in outstanding debt. GM spokeswoman Gina Proia said the company is taking steps to restore profitability. GM shares fell $ 1.23, or nearly 5 per cent, to close at $ 24.63 on the New York Stock Exchange, a 13- year low.