If, as expected, General Motors auditors question the automakers ability to remain viable, that could set off a chain reaction resulting in banks canceling loan agreements with GMs suppliers, industry and accounting officials said today.
That would further exacerbate supplier problems during the worst auto-industry meltdown in decades.
A warning from auditors on GMs viability increases the likelihood that suppliers auditors will view GMs payments to its suppliers as being at risk, said Neil De Koker, president of the Original Equipment Suppliers Association in suburban Detroit. That may prompt the auditors to cast doubt on the viability of the suppliers themselves, De Koker added. That could create an avalanche.
GM said yesterday it likely will receive a going concern notice from auditors, who will assess the risk that the automaker might be unable to survive.
A going concern warning is given when auditors have substantial doubt about a companys ability to survive, said Greg Coursen, director of professional standards at Plante & Moran LLC, a suburban Detroit accounting firm.
Banks that finance suppliers could use the going concern status of a suppliers customer to free themselves from loan and credit agreements with the supplier, said Kimberly Rodriguez, co-leader of accounting firm Grant Thornton LLPs global automotive practice.
What it means is an opportunity for lenders and stakeholders under other commercial agreements to either pull out or change their terms, Rodriguez said. Most lending agreements state that a going concern notice is an event of default, she said.
How this will affect suppliers will depend on whether the government will provide aid for GM, Chrysler LLC and the supply base, Rodriguez said.
Lear to be flagged
Seat supplier Lear Corp. reported today that it expects a going concern warning from auditors because of industry conditions and its current default on the terms of its primary credit facility. Lear, which said it is trying to renegotiate the facility, did not specify what the auditors might report. Lear has asked for more time to file its audited annual report.
The cash crisis at GM and Chrysler, coupled with massive North American vehicle production cuts in December through February, makes federal aid even more urgent for suppliers, De Koker said.
He said association representatives made their case to the White Houses automotive task force this week. De Koker warned that without government help, thousands of suppliers will close or seek bankruptcy protection.
He said the task force is weighing the $18.5 billion aid request for suppliers. But it gave no indication how or whether it would provide funds. The association requested a combination of federal guarantees for parts payments and bank loans to help suppliers. It also requested a quick-pay provision so suppliers dont have to wait 45 days for parts payments.
Separately, KDP Investment Advisors Inc., of Montpelier, Vt., said this week that supplier Visteon Corp. is a candidate for bankruptcy. The debt analysis firm questioned whether Visteon, the former parts arm of Ford Motor Co., will make a March 10 interest payment on its 7 percent bonds that mature in 2014.
Visteon spokesman Jim Fisher declined to comment on whether the company planned to make the payment.
But, Fisher said, the payment to service the interest on the bonds is $16 million, and the company had $1.2 billion in cash at the end of 2008.