General Motors Corp disclosure of accounting errors and an additional $2 billion loss for 2005 on Friday deepened Wall Street doubts about the company's management and renewed questions about the automaker's long-term survival.
GM bonds fell on Friday and shares dropped almost 5 percent, their biggest single-day decline in three months.
GM's board of directors held an unscheduled discussion on Friday in the wake of the disclosures, the Wall Street Journal said, citing a person familiar with the matter. A GM spokeswoman had no comment on the report.
Analysts said the accounting problems revealed in a surprise announcement late Thursday further tarnished GM's reputation with investors, who were already wary of the automaker's eroding market share and high labour costs.
A delay in filing GM's annual report also undermined confidence despite signs GM was moving to settle a labor problem involving former unit Delphi Corp, analysts said.
"I think this will make investors skittish," said S&P equity analyst Efraim Levy, who reiterated a "sell" rating on GM. He called the missteps embarrassing for an industry, which used to have a reputation as "pretty clean and transparent."
The disclosures were also seen as potentially complicating GM's efforts to sell a majority stake in GMAC to raise cash and improve the credit rating of its finance arm.
Some analysts said pressure was mounting on GM Chairman and Chief Executive Rick Wagoner, who took the helm in 2000 and assumed personal control of GM's struggling North American unit in April 2005.
"Is this another blow to management? I would say yes," said Argus Research analyst Kevin Tynan. "But you can't say management was on very steady ground in the eyes of investors."
Corporate governance experts said standard practice would have been to inform GM's board about Thursday's disclosures.
GM spokeswoman Toni Simonetti said she was not sure if the full 12-member board had been notified in advance, but she said the four-person audit committee had been "fully apprised."
Nell Minow, co-founder of The Corporate Library, said that GM would be exposed to an "inevitable" shareholder lawsuit if the full board had not met regarding the accounting issues. "This is a company that does not need additional liability."
Late Thursday, GM said its 2005 loss was $10.6 billion, including new charges related to job losses, its finance arm, GMAC and the bankruptcy of former subsidiary Delphi.
GM also said it would restate results for the years 2000 through 2004 after mistakenly accounting for cash flows from a mortgage unit. It said it had incorrectly accounted for some supplier payments and vehicle leases.
"This seems to fit into a pattern of aggressive accounting by GM throughout the organisation," Mark Altherr and Natasha Tsiouris, analysts with Credit Suisse Research, wrote in a note to clients.
The Detroit-based company, which remains the world's No 1 automaker by revenue but ranks No 8 by market value, has been slashing costs and cutting capacity as it adjusts to market share losses to Asian rivals in its core US market.
Moody's Investors Service on Friday warned it could further downgrade GM, GMAC and GMAC mortgage subsidiary ResCap. Wagoner also faces heightened concern on Wall Street that GM could be headed for a bankruptcy filing, in part to cut labour-related costs that have sapped profitability.
Peter Morici, a professor at the University of Maryland business school, said there was no reason to believe that Wagoner could turn GM around. "Absent change, GM will run out of cash and go bankrupt. I do think Wagoner has got to be replaced. I had not got to that point until now," Morici said.
In one bright spot, some analysts saw GM's estimate of a deeper exposure to Delphi, to $5.5 billion before taxes from an earlier estimate of $3.6 billion, as a sign talks with the parts supplier and its unions were progressing.
But expectations have faded for a deal before the end of the month, when Delphi has said it would move to void labour contracts with the union. Some industry watchers also cautioned that GM's ultimate exposure to Delphi could rise further.
When GM spun off Delphi in 1999 it guaranteed the pensions and benefits of union workers.
GM shares have been under pressure for more than a year. Six analysts have a "sell" or "underperform" rating on the stock and nine have a "hold" rating, compared with two who have an "outperform" rating, according to Reuters Estimates.
Tynan said the only support to GM shares would come from momentum traders looking for a short-term rally. "This is not a company you would buy for its fundamental attributes or its operational strengths," he said.
GM shares closed down $1.09, or almost 5 percent, to $21.13 on the New York Stock Exchange, erasing two days of gains. Volume was heavy at 9.9 million shares, up 65 percent from the average over the past 25 trading days.
GM's benchmark 8.375 percent bonds due in 2033 fell to 73.25 cents on the dollar, down from 75.3 cents late on Thursday, MarketAxess reported.
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