DETROIT -- General Motors' restatement of 2005 earnings to account for higher costs in an effort to avert a strike at its largest supplier, Delphi Corp., indicates it is close to a deal with Delphi and the union, sources say.
GM reported Thursday, March 16, that it lost $10.6 billion last year rather than the previously reported loss of $8.6 billion in 2005. The approximately $2 billion in additional red ink covers an increase in the estimated costs of a Delphi settlement, higher costs for GM's plans to idle a dozen plants by the end of 2008 and an accounting charge for its finance arm, General Motors Acceptance Corp.
Inside GM, executives remained calm about the restatement, saying it was not a cash loss, "just accounting for possible future liabilities," says one executive-level source who asked not to be named.
GM is making progress in talks with Delphi, its former parts division, and the UAW, a source close to the two say. Delphi has set a March 31 deadline to resolve its union contract issues. Delphi is hoping GM can provide a soft landing through early-retirement incentives for many of Delphi's union workers, who formerly worked for GM.
But there are issues preventing a deal. The holdup is primarily with Delphi CEO Steve Miller, a source close to the situation says. This month, GM CFO Fritz Henderson and Vice Chairman John Devine met with Miller and his team for an entire day. "We are making progress," the source says.
A spokesman for the UAW declined to comment on the talks. Delphi spokeswoman Claudia Piccinin says: "We are continuing in our discussions to reach a comprehensive agreement with all parties. Talks have been constructive and are progressing." She declined further comment.
The earnings news sent Wall Street into a tailspin Friday, March 17, as GM stock dropped 2.4 percent to $21.13 a share at the close of trading. The news also sparked false reports that GM's board called a meeting. The source said no board meeting or discussion was held Friday.
Some analysts questioned GM's accounting practices.
"While none of these issues are enough to change our thesis on GM, they do raise our concerns on the company's internal accounting controls," wrote Himanshu Patel, of JP Morgan Securities in New York, in a note to investors.
Others say GM's restatement is mostly housekeeping.
"Everyone wants to panic," says David Healy, auto analyst with Burnham Securities in Sierra Vista, Ariz. "GM is just moving earnings from one time period to the other and moving cash from one classification to another.
"This doesn't involve fraud or disclosure problems. They just made a mistake on when the charges should have been taken."
GM estimates a pretax Delphi settlement will cost it from $5.5 billion to $12 billion. It had estimated in January a cost from $3.6 billion to $12 billion.
Many analysts say the news signals that GM is closer to a deal with Delphi, which is in Chapter 11 reorganization, and the UAW.
Rob Hinchliffe, analyst for UBS Securities LLC in New York, wrote in a research note that "GM's move to increase its minimum exposure to Delphi is a signal of this progress."
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