Auditors doubtful GM can survive

Washington —- Auditors for General Motors on Thursday said there is “substantial doubt” that the struggling automaker will remain financially viable and able to continue operating, raising doubts about whether the company will have to declare bankruptcy or can continue to qualify for Treasury Department loans.

The White House said it was “working around the clock” on the problem. News of the audit contributed to a renewed slide on Wall Street. Stocks, which had seen moderate gains Wednesday, fell to a new low for the bear market of 6,594.44, losing 281.40 points, or 4.1 percent.

GM stock, which traded for more than $22 a year ago, closed at $1.86.

The GM auditors’ comments were part of a “going concern” statement included in an annual report filed with the Securities and Exchange Commission.

“The corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern,” auditors Deloitte & Touche wrote in the SEC report.

In Washington, some of GM’s bondholders met Thursday with members of President Barack Obama’s auto industry task force, which is charged with overseeing the restructuring at GM and Chrysler. A White House spokeswoman, Jen Psaki, told reporters that the administration hoped to find a solution soon.

“The administration is very mindful of the challenges in the auto sector,” Psaki told the Reuters news agency. “Our team is working around the clock to develop the most thoughtful approach possible to the situation.”

It was no surprise that auditors would question GM’s viability.

The Detroit-based behemoth lost $30.9 billion last year, is living on $13.4 billion in government loans, and is seeking up to $30 billion as it tries to survive the worst auto sales climate in 27 years.

But the auditors’ comments are serious because the threshold for raising such concerns is tilted heavily in favor of companies, and often they can negotiate them away, said John Pottow, a University of Michigan Law School professor who specializes in bankruptcy.

“If you get a qualified going concern audit letter like this, that suggests you are in extreme financial distress and very likely may file for bankruptcy,” he said.

U.S. Sen. Charles Grassley of Iowa, the top Republican on the Senate Finance Committee, said the auditors’ concerns mean the government will likely have to provide more help to GM. Grassley called for a “restructured bankruptcy” involving the government.

“It would be a process of bankruptcy but be worked out outside of the court in mutual agreement to bondholders, stockholders, management, in this case, the federal government, because we’ve got a lot invested there, and also the unions,” Grassley said in a conference call with reporters.

Ray Young, GM’s chief financial officer, said in an interview Thursday that GM can accomplish its restructuring goals without bankruptcy. The company is making progress in negotiations to swap debt for stock and to gain concessions from the United Auto Workers union, he said.

“One thing for certain is there’s going to be recovery,” Young said. “We just need to take advantage of this situation to streamline, downsize, get ourselves leaner, so that when the recovery occurs we will emerge as a far stronger company.”

In its annual report filed with the Securities and Exchange Commission, GM also disclosed that Chief Executive Rick Wagoner received a pay package worth $14.9 million in 2008, although $11.9 million of his compensation was in stock and options whose value plummeted to $682,000 as GM’s share price sank.

Both GM and Chrysler, which also has received government loans, face a March 31 deadline to get signed agreements for concessions from debtholders and the UAW to show the government they can become viable again. If they fail to reach the necessary deals, the government could recall the loans and force the companies into bankruptcy protection.

In the filing, GM warned of its troubles spreading to its suppliers. Already auto parts makers are struggling to keep their lights on. Under a complicated trade credit system, suppliers are only now being paid for parts supplied to manufacture cars and trucks in December and January.

Because the industry nearly halted production earlier this winter, suppliers are faced with much smaller incomes this month. Many of these suppliers manufacturer parts not only for Detroit’s automakers, but the foreign transplants as well. So any disruption in the supply chain would have ripple effects throughout the entire auto industry.

The Associated Press and The New York Times contributed to this article.