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For GM, a New Low

The carmaker's shares are hit again after it details a profit restatement from 2001.
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reputation and its stock price hit a new low Thursday.

After the company informed Wall Street it would restate 2001 earnings because of inaccurate accounting, shares of the world's largest automaker were recently down $1.28, or 5.2%, to $23.35. That's a 23-year low for the embattled stock, 25% below the $31 bid that casino tycoon Kirk Kerkorian offered for the shares in May.

GM said it said it erroneously recognized some supplier credits as income in the year in which they were received rather than in the future periods to which they were attributable. GM estimated that its net income from continuing operations for 2001 was overstated by $300 million to $400 million, or about 25% to 35%, because of the error. The

Securities and Exchange Commission

is reviewing the issue.

GM expects to complete the review before filing its annual report for 2005. On Nov. 8, its audit committee concluded that investors should no longer rely on GM's previously filed financial statements for that year. The audit committee has discussed this matter with auditor Deloitte & Touche LLP.

The automaker said it may have to make adjustments to earnings in years subsequent to 2001, but it expects those adjustments to be immaterial.

Argus Research analyst Kevin Tynan said that given the scope of the SEC's investigation into GM's accounting, the news could have been worse. Rather than booking profits that did not exist, the company just booked profits in one year that it should have spread out over a longer period of time.

"The money is really just moved," Tynan said. "It's still there. It's just a matter of spreading it over the life of the contract rather than booking it in that one period."

GM, which recently posted a $1.3 billion third-quarter loss due to spiraling labor costs, confirmed that it has received a subpoena from regulators who are now formally investigating a variety of issues on its books.

"These matters include GM's financial reporting concerning pension and other post-employment benefits, certain transactions between General Motors and Delphi, GM's recovery of recall costs from suppliers and supplier price reductions or credits, and any obligation GM may have to fund pension and OPEB costs in connection with Delphi's proceedings under Chapter 11," the company in an SEC filing.

The 2001 restatement is the latest black eye for GM's management team and CEO Rick Wagoner. This year, the company's debt ratings have been reduced to junk status by all the major ratings agencies. Its health care costs and pension obligations have soared. Its sales and earnings have collapsed as foreign manufacturers with lighter cost structures have continually grabbed market share. Furthermore, the company's product decisions in recent years look increasingly bad, given their weighting towards gas-guzzling trucks and SUVs. With gas prices soaring, consumers are looking for fuel-efficient alternatives.

Still, Tynan said a management shakeup is probably not the answer for the company.

"The environment is so challenging, and the company is really reeling, so I'm not sure that it's a good time to have a change of management right now," Tynan said. "I'm not saying these guys have anything to brag about, but upsetting the apple cart now could do more harm than good."

He said a Chapter 11 filing by GM somewhere down the road is almost certain at this point, and he points to the recent bankruptcy of its largest supplier,


, as a foreshadowing.

"The concessions on labor costs that GM can get from the

United Auto Workers union are not substantial to fix the problems in its cost structure- which are decades in the making," Tynan said. "Delphi's bankruptcy filing was more about getting out of their labor contracts than anything else, and I think the same thing will happen to GM."