General Motors Gets SEC Request, Sees $7 Billion Exposure to Delphi
General Motors said Thursday U.S. securities regulators had requested documents relating to its accounting for financial hedges and said a parallel inquiry at its former finance arm could force the automaker to restate past results again.
GM also said in a filing with the U.S. Securities and Exchange Commission that it had set its estimated exposure to bankrupt auto parts maker Delphi at $7 billion and could take a $1 billion charge this quarter related to the restructuring of its former subsidiary.
The SEC's request for information marked the latest accounting setback for GM, which pledged to tighten its financial controls after twice restating results and delaying its fourth-quarter report.
Separately, GM said that a sale of subsidiary Allison Transmission was now "probable" but that a transaction remained subject to union, regulatory and other approvals. GM had announced in January that it was looking to sell the unit.
Blackstone Group, Centerbridge Capital Partners and Carlyle Group are among the other buyout firms said to be interested in the Indianapolis-based division, which makes transmissions and hybrid systems for trucks, buses and military vehicles.
Lehman Brothers analyst Brian Johnson said in a note that GM could raise over $3 billion from an Allison sale.
GM spokeswoman Renee Rashid-Merem said the automaker was cooperating with the SEC in its accounting inquiry.
The company also said in its filing that it could be forced to restate results because of a similar SEC review of past hedge accounting at GMAC, now 51-percent owned by Cerberus Capital Management.
The automaker filed its annual report in March after a six-week delay, which it blamed on repeated accounting errors, and said its internal controls on financial reporting had been ineffective. The company appointed a new controller and chief accounting officer last year.
GM, which has stopped providing financial forecasts, is in the middle of a restructuring effort that focuses on cutting costs and improving cash flow. It has eliminated more than 34,000 jobs and is closing 12 plants.
Some analysts have suggested that Delphi, GM and the United Auto Workers union are nearing a deal that would allow the auto parts supplier to emerge from bankruptcy with lower wage rates and financial support from GM, its largest customer.
GM said in its filing on Thursday that it had received proposals from Delphi and the union on the automaker's role in Delphi's restructuring.
In addition, the automaker narrowed its estimate of its exposure related to Delphi to $7 billion from a previous range of between $6 billion and $7.5 billion.
"We have taken a $6 billion charge to date," Rashid-Merem said. "In order to hit that $7 billion, we would potentially take an additional $1 billion charge in the second quarter."
Rashid-Merem declined comment on when a deal was expected to be reached but said that GM's move to a specific $7 billion exposure target was an "indicator of where we are."
GM also said it would pay Delphi $300 million to $400 million in annual labor-related charges, and make annual transitional payments of about $100 million, but noted the total and specific payments were subject to negotiation.
GM said the costs will be more than offset in the long term by savings on parts it buys from Delphi.
Johnson of Lehman Brothers said GM's move to raise its estimated exposure to Delphi suggested that the UAW had made ground in negotiations with GM and Delphi.
The move, he said, "supports a bearish thesis that labor is still seeking to protect the status quo and GM appears willing to subsidize a soft landing."
General Motors shares were trading down 10 cents at $31.35 in morning trading on the New York Stock Exchange on Thursday. The stock has gained about 2 percent since the start of the year.