General Motors Corporation

Vani Gill

As the Chief Financial Officer, I am here to presentinform to the audit committee about the
pending audit opinion of the external auditors of General Motors Company, Deloitte and Touche,
LLP. There were many findings in the audit opinion, which presented not only good news, but
bad news as well.The audit findings of the Deloitte and Touche, LLP were a mixed bag of sweet
and sour treats more sour than sweet. The audit opinion of Deloitte and Touche, LLP presented
that The good news states that the General Motors Corporations (GM) financial statements
conformed to the generally accepted accounting principles in the United States of America
(GAAP), which basically means that the final accounts did not deviate from the accepted and
regulatory norms, principles, and concepts such as the matching principle, revenue recognition,
going concern etc.. But at the same time, the report shed light on a grave matter regarding the
survival of the firm as a going concern. Although, the opinion showed this positive news there
were some downsides that were included.
The Cash Flow Statements indicate that the firm has not been able to generate enough funds (or
cash) to meet the level of outflows- both financial and operational. If the same trend were to
continue in the future, the firm would not be able to survive the deficiency in cash, and the
recurring losses in operations. From the audit opinion, I was able to note that GM The
Corporations net loss totaled $71 billion of net losses from 2006 through 2008. Secondly, it
retained deficit of $86 billion as of December 31, 2008. Lastly, GM used more than $12 billion
in cash from operating activities thatn it generated in 2008. All of these issues allude to whether
GM should declare bankruptcy. These figures directly question the corporations existence in the
impending future.
These findings raise a potent question as to why is GMs successfulness being questioned Delving right into the causes of these figures, it needs to be reinforced that the corporation
has not been able to protect its market share from its competitors and has been
losing a substantial portion to new entrants. At the same time, lack of more
innovative products and deficiency in the quality of currently marketed products
both of which the competitors have mastered (or are in the process of mastering)
contribute to these recurring losses. It is no surprise that to earn a competitive
advantage in the current market sphere, a company needs to actively control and
reduce its costs and maintain an efficient cost structure something which is
seriously lacking in our current operations owing to the inefficiency of the
management.

The majorly anticipated question would obviously be whether the corporation should file for
bankruptcy protection under chapter 11 of the US Bankruptcy Code. For those who are not
familiar with the same, I would like to reiterate that when a business is unable to service its debt
or pay its creditors, the business or its creditors can file with a federal bankruptcy court for
protection under either Chapter 7 or Chapter 11. In Chapter 7, the business ceases operations, a
trustee sells all of its assets, and then distributes the proceeds to its creditors. Any residual
amount is returned to the owners of the company, whereas in Chapter 11, in most instances the
debtor remains in control of its business operations as a debtor in possession, and is subject to
the oversight and jurisdiction of the court. Hence, Chapter 11 is the preferred route.

Bankruptcy may help GM because it would have the opportunity to void contracts and negotiate
some the debt that is owed. Another reason is that bankruptcy would allow the company to
exclude labor contracts that are placed at a competitive advantage. Thereafter, the firm can
establish a wage structure that is equivalent to other competitors.
GM can also reduce its retirement obligations. Legacy costs for pension payments and health
benefits to former employees have consumed a large amount of GM cash. The company can
shutter plants that are non-productive and cancel long-term leases. Lastly, the courts would
make the creditors negotiate the debt obligations, which would help GM turn debt into equity
stakes of the newly restructured firm.
Having mentioned the advantages of choosing Bankruptcy protection as an option to revive the
status of operations, the disadvantages cannot be ruled out.
Although, there are benefits of bankruptcy there is also a downside of declaring bankruptcy. One
of the disadvantages is that the court-appointed bankruptcy trustee would have to approve all
major corporate decisions. This means the judiciary, instead of the management, would
effectively run the firm during the proceedings. Another disadvantage is that bankruptcy would
increase the expenses of administrative work. GM would be obligated to pay for the work of
attorneys, accountants, and other consultants during the restructuring process.

These findings may raise questions as why is GMs successfulness being questioned, should the
company consider bankruptcy, and if so how would this effect our customers faith in the
company?
GMs successfulness is being questioned, because there was substantial amount of losses than
there were profits. Also, there were multiple causes that have given these poor outcomes. Some
of these causes are that the company has been unable to protect the market share, there has been
lack of product innovations, deficient product quality, bloated cost structure, and ineffectiveness
of the management.
Another So the next question that may arise is whether the company should file for bankruptcy.
The audit report eventually alluded that GM may be on the verge of bankruptcy. During analysis
of the different scenarios, there tends to be more of a benefit of filing for bankruptcy as the pros
are outweighing the cons by a significant number and proportion. But ultimately the decision
depends upon how the market will react to this bankruptcy if we do not lose the customers
equity and they stand tall with us during these times, we should be able to weather this storm but
if the market does not take this news well and a significant number of consumers lose faith,
exiting the market altogether would be the only solution.
An additional concern is that what would happen if the consumers lose faith in the company and
what would happen if they dont? All of these issues raise doubts whether the consumers will
lose faith in GM. If many of these consumers lose faith then GM would have to leave the market,
but if the consumers do not then GM can reemerge as a stronger firm post the bankruptcy filing.