DETROIT (March 3, 2009) — If, as expected, General Motors Corp.'s auditors question the auto maker's ability to remain viable, that could set off a chain reaction resulting in banks' canceling loan agreements with GM's suppliers, industry and accounting officials said.
A warning from auditors increases the likelihood that suppliers' auditors will view GM's payments to 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 said, adding, "That could create an avalanche."
GM said last week it likely will receive a "going concern" notice from auditors, who will assess the risk that GM might be unable to survive.
A going concern warning is given when auditors have "substantial doubt" about a company's ability to survive, said Greg Coursen, director of professional standards at Plante & Moran L.L.C., a suburban Detroit accounting firm.
Banks that finance suppliers could use the going concern status of a supplier's customer to free themselves from loan and credit agreements with the supplier, says Kimberly Rodriguez, co-leader of the global automotive practice at the accounting firm Grant Thornton L.L.P.
"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 agreements state that a going concern notice is "an event of default."
Seat supplier Lear Corp. said last week that it expects a going concern warning 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 time to file its audited annual report.