Restatements push GM stock to 23-year low
Securities analyst warns auto maker has increased risk of bankruptcy Market punishes changes to financial results over accounting error
DETROIT— Shares of General Motors Corp. spiralled to a 23- year low yesterday, as fears about its financial woes and a possible strike at the auto giant’s main parts supplier rose to new heights. A day after GM said it would restate some annual results, Banc of America Securities analyst Ron Tadross warned of an increased risk of bankruptcy and cut his target price on the company to $ 16 ( U. S.) from $ 18.
Citing “ increasing evidence that hidden liabilities exceed hidden assets” at GM, Tadross also told clients he was raising his view of its risk of bankruptcy over the next two years to 40 per cent from 30 per cent. GM spokesperson Toni Simonetti said the company is not pursuing a bankruptcy plan.
“ General Motors believes it has adequate cash and liquidity to run the business and we have prudent capital planning strategies in place,” she said.
In a quarterly filing with U. S. regulators late Wednesday, GM said it would restate 2001 financial results, which were overstated by as much as $400 million for the year. The company said the accounting error stemmed from the way it booked credits from suppliers. GM also quadrupled its second- quarter 2005 loss to $ 1.07 billion to reflect the diminished value of its investment in Japan’s Fuji Heavy Industries Ltd., maker of Subaru cars. GM shares closed at $ 23.51 on the New York Stock Exchange, down $ 1.12. The stock has fallen more than 45 per cent this year and its decline could ratchet up pressure on chief executive Rick Wagoner to launch a more aggressive revival plan. The restatements have little fundamental impact but hurt GM’s credibility and could give more leverage to a lawsuit filed against the company in September. The suit, which seeks classaction status, accuses GM of misleading investors about its financial forecast before a shock earnings warning last March. Law firm Milberg Weiss, which filed the suit in New York, said GM issued more than $ 18 billion in shares, bonds and other debt securities from February 25, 2002, to March 16, 2005. The suit alleges “ the company’s debt ratings were materially inflated by defendants’ materially false and misleading statements and omissions.” The Detroit- based icon has lost nearly $4 billion this year as it grapples with high health care and commodities costs, a steady erosion of U. S. market share and sputtering sales of big sport utility vehicles, its long- time cash cows, due to high gasoline prices. To further compound matters for the beleaguered auto giant, GM’s main auto parts supplier, Delphi Corp., filed for bankruptcy protection in October and GM, Delphi’s former parent, could face up to $ 12 billion in liabilities. UBS analyst Robert Hinchcliffe said earlier this week that a Delphi strike at one or two strategic plants would shut the plants down and force GM to burn through $ 19 billion in cash and liquid assets in about 10 weeks.