The world's largest automaker, General Motors ( GM), lost a whopping $8.6 billion last year. Wait, no. Actually, it lost $10.6 billion. GM widened its reported loss for 2005 by roughly $2 billion after adjusting some previously reported charges. The company said late Thursday it would delay filing its 10-K for 2005 until later this month, and its reported loss for the year will move to $18.69 a share from its prior announcement of $15.13. Shares of GM were recently down 82 cents, or 3.4%, to $21.40. "This is a blow to management's credibility, and it's embarrassing, but I don't think the economic impacts here are too dramatic," says Morningstar analyst John Novak. "In the end, it's just some changes in classification in accounting terms, and why wait to add these charges to your 2006 results and weigh down those results when you can add them to losses in 2005, a year that everyone agrees was terrible." The added losses came from a variety of places in GM's business. The company boosted a charge related to its North American restructuring to $1.7 billion, up from the $1.3 billion it previously reported. That change reflects an increase in the provision for employee costs at plants where GM plans to stop production. At GMAC, the company's financing arm, GM will record goodwill-impairment charges of $439 million, primarily relating to its commercial finance operating segment. At its residential mortgage subsidiary, ResCap, GM warned that accounting issues may impact its 2005 statements of cash flows. Argus Research analyst Kevin Tynan says issues at GMAC could weaken GM's bargaining position as it tries to sell a portion of the unit to boost its credit ratings and add to its cash cushion. "There's uncertainty about the accounting that bleeds into GMAC," Tynan says. "That has the potential to hold up a deal or even make one fall through. ResCap is the crown jewel of GMAC."
For Delphi, where GM is locked in negotiations with labor unions to negotiate a restructuring and prevent a strike, the automaker raised its liabilities related to the auto-parts supplier's bankruptcy. The charge now comes to $3.6 billion, up from the previous estimate of $2.3 billion. GM's liabilities related to Delphi's bankruptcy could run as high as $12 billion, but the automaker has said it expects it to come in far lower. Delphi, once a GM subsidiary, remains its chief parts supplier. In its restructuring, Delphi is attempting to lower its labor and legacy costs, but the United Auto Workers union has opposed its proposals. If negotiations fail, a resulting labor strike could cripple GM's production lines and leave it in a debilitating credit crunch. "The announcement about added charges related to Delphi could actually be viewed as a minor positive in the context of the ongoing negotiations," Novak says. "It shows the parties have been talking. They've sharpened their pencils, and they now have a little more clarity about what it's going to take to resolve this thing. So, it could be a sign of progress." Meanwhile, GM's accounting changes come in the midst of an ongoing probe of its financials by federal regulators. In addition to the latest charges added to its 2005 results, GM has faced questions about how it accounts for its pension obligations and other liabilities. When it files its annual report later this month, GM will include restated results for 2000 through 2004 after erroneously recording certain payments and credits from suppliers. It will also lower its previously reported 2005 first-quarter net income by $149 million due to accounting errors related to vehicles being leased to rental car companies. "Usually, when a company has accounting issues like this, it's just the tip of the iceberg, but we really don't know if this will lead to any more issues down the line in GM's case," Tynan says. "There's still a lot of unraveling that could take place as an offshoot of yesterday's news. In the end, it's all indicative of the major challenges facing the company."