November 23, 2010

GM Going Public a Success Story?

By Frank Ryan

Last week, GM sold stock in a public offering. At the same time, President Obama announced that the tough decisions made during his administration were beginning to pay off. He also indicated that the "American taxpayers are now positioned to recover more than my administration invested in GM, and that's a good thing."

I do not know where to be amazed or appalled.

First, contrary to popular administration folklore, GM did not survive bankruptcy. The name did, but that is all that happened. A new company acquired the name and assets of GM and is now the company being called GM. I wonder if the GM commercials tracing its history back to the older GM without a disclaimer is being honest with those of us who own it -- the American taxpayers.

Additionally, GM's profit of $2 billion in this most recent quarter is a little puzzling. The difficulties involving the financials for a large company are well-known, but the disclosure statement by the company about its internal controls concerns me. I am more puzzled about the $2 billion in profit in light of the following disclosure (Page 166) from the GM 3^rd-quarter 2010 SEC filing:

We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan.

If control deficiencies were not enough, I am troubled as well by the presence of some items on the GM Balance Sheet, the valuation of which is subject to significant interpretation. Specifically, the company lists over $30 billion of goodwill. Goodwill? Really? I am certain that someone can justify this number, but then again, someone justified the bailout to begin with.

GM's profit and alleged success serve as a horrible payback to the holders of over $100 billion in debt forgiven and shareholder value lost over the recent decade. Proclaiming a success from such a travesty is difficult to understand.

Bankruptcy is intended to serve as a fresh start. It is intended to help people and organizations begin again and restore themselves to profitability or financial health. To boast of your success after so many millions have been hurt is devastating.

The real success story in my mind is Ford Motor Company and the United Auto Workers at Ford, who worked feverishly with one another to restore profitability in a very difficult economy.

Ford earned approximately $1.7 billion on much lower sales than GM's. Ford's shareholders and employees also benefited. The U. S. Treasury benefited in that a tax provision of almost $200 million was recorded in the quarter. Paying taxes versus receiving bailouts is such a patriotic thing to do, according to Vice President Biden. Thank you to the Ford team.

As a result of the Ford team's efforts and its factions' cooperation with one another, new Ford is the old Ford. Ford's commercials will not need to be disclaimed. Does that mean that Ford did everything right? Absolutely not, but it does mean that management, employees, the unions, dealers, suppliers, local government, and lenders worked together to resolve an incredibly difficult problem, and they did so successfully.

I realize that this is not much consolation to Ford or its team, but since the president has decided to laud the activities of those who took the easy way out, let me be one of the first to laud you and your entire team for a job well done! That is the true recession success story. Let's celebrate that.

Frank Ryan, CPA specializes in corporate restructuring and lectures on ethics for the state CPA societies. He is a retired colonel in the Marine Corps Reserve and served in Iraq and briefly in Afghanistan. He can be reached at FRYAN1951@aol.com.