General Motors Corp. said today it would likely take a $1-billion charge due to a more certain, and more expensive, estimate of its costs from Delphi Corp.’s bankruptcy.
In a filing with federal market regulators, the automaker also said the U.S. Securities and Exchange Commission had asked for more information about accounting changes involving foreign currency hedges and commodities contracts, which GM’s outside auditors had flagged as a “material weakness” in GM’s accounting system.
Analysts said GM’s disclosures on Delphi could indicate progress in talks between
GM, Delphi and the United Auto Workers, which have been haggling for months over labor terms. Delphi has asked the UAW for deep wage and benefit cuts, which the UAW has rejected. GM said it had received proposals from the UAW and Delphi that “provide a basis for continuing productive negotiations.”
GM had said earlier this year that it expected its total liability from Delphi to total $6 billion to $7.5 billion, and the automaker had set aside $6 billion last year. GM spokeswoman Renee Rashid-Merem said the additional $1 billion charge would likely be taken in the second quarter.
GM also raised its estimates of how much it might pay to support UAW workers at Delphi, saying it expects to pay Delphi $500 million once it emerges from bankruptcy, with annual labor payments of $300 million to $400 million plus “transition” charges of about $100 million a year. GM had previously said the
annual payments would run between $100 million and $200 million.
“Everything’s dependent on a final agreement and emergence from bankruptcy,” Rashid-Merem said.
The automaker added that its annual costs would be made up over the long term by avoiding what it calls an annual “price penalty” of $2 billion for buying Delphi parts.
Lehman Brothers analyst Brian Johnson said GM’s disclosure suggests a deal could be close, but “supports a bearish thesis that labor is still seeking to protect the status quo and GM appears willing to subsidize a soft landing.”
The SEC information requests follow GM’s restatement of earnings for 2002 through 2005 due to flaws in how it treated contracts involving complex financial techniques that protect against sharp changes in the value of currencies or commodities.
GM also said it believes a sale of its Allison Transmission unit is “probable,” and that it was discussing the sale with a number of prospective buyers.