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I Smell A Bankruptcy

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Learning to read between the lines is an essential skill.

This looks to me like a revision which will have huge implications if its taken on board and a lesson to investors.

Accounts going back 5 years are to be reviewed.

Can shareholders who bought shares during this period sue on the basis of false accounting?


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There are various ways of hiding losses, such as recording finished goods inventory as sales, deferring payments, falsely shrinking work in progress and not recording bought in goods until the next accounting period. Of course, you can only get away with so much before the figures are so skewed that you can't bear to present them, and then you have to come clean. I expect the process started with anticipation that the original problems would be clear in a year or two, but their problems have stretched out due to higher gas prices and their ongoing commitment to ugly, crass vehicles that waste fuel.

Whether they will be allowed to go bankrupt is another matter. My suspicion is that the US government will find ways of keeping them going. For GM to go bust would be too serious a blow to their thinning veneer of still having a healthy economy.

All it measn is that the end will be all the worse if/when it comes. I wouldn't cry to see the end of their horrible creations.

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The discovery of these 'accounting problems' could undermine GM's sale of GMAC which they were hoping would provide them with a lifeline.

Here's a thread on GM which may, or may not , be of interest.


Ford are also close to bankruptcy. Some commentators not only believe bankruptcy in inevitable for both in the very near future but it 'll be 'tits up in tandem'. 300,000 autmotive jobs and another 2 millions in associated industries.

But the 'accounting problems' go far deeper. Note the 'problems' ONLY cam to light because the SEC has started a probe of their accounting practices. Probe has not finished. I can smell Enron accounting practices festering in the deepest and darkest of GM's ledgers.


The company also disclosed some details of accounting problems that GM spokesman Jerry Dubrowski said were discovered as part of a review of its practices started last fall when the Securities and Exchange Commission started a probe of its accounting practices.

One of those accounting problems, revolving around what the company said was erroneous classification of cash flows from certain mortgage loan transactions at the mortgage unit of its GMAC finance arm, will caused the company to miss a filing deadline for its 10-K full-year financial report with the Securities and Exchange Commission, a delay that could conceivably force it to be in technical default of some $32 billion in debt.

Moody's, one of the major credit rating agencies, said it was placing the company's debt on review for possible downgrade, due to that filing delay.

"Should GM be unable to meet this requirement, it could receive a notice of default," the Moody's statement said. "GM would then have 90 days to remedy the default or receive waivers, otherwise it could face an acceleration of these obligations, possibly as early as the end of June."

Moody's also said it was concerned that the accounting issues could delay a sale of the majority stake in GMAC. The company has been struggling with junk bond status for almost a year, and that has forced it to look to sell a majority stake in GMAC, so that the finance unit can regain an investment grade rating that would give it the access it needs to the capital markets.

GM's Dubrowski said the company did not think there was any risk of a default.

"We expect to file the 10-K within the next two weeks," he said Friday. "Yesterday was the deadline. We sought and received a two week extension."

Standard & Poor's, another major credit rating agency, agreed with GM that it did not see a significant risk of default due to the delay, and it did not place the company on credit watch. But it did have new criticism of the company due to the announcement.

"(The) delay in issuing its 2005 form 10-K heightens concerns about the integrity of the company's financial reporting and internal controls, but has no immediate effect on the ratings," said the firm's statement.

Finally the company also warned that investors should not continue to rely on its previously filed financial statements for the first quarter of 2005 due to accounting errors related to vehicles on operating leases with daily rental car companies.

Edited by Baz63

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  • 301 Brexit, House prices and Summer 2020

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