From Detroit Free Press

DETROIT — General Motors Corp.’s stock skidded Wednesday after accounting experts cast doubt on how the automaker reported certain transactions with former subsidiary Delphi Corp., its largest supplier.

The Wall Street Journal reported Wednesday that several accounting experts it contacted had looked askance at the choices made. A GM spokeswoman insisted the accounting was appropriate and that the experts did not have complete knowledge of the transactions.

GM also said it will cooperate with an SEC request for documents related to the government agency’s investigation of Delphi.

She declined to say whether GM was the subject or target of an SEC investigation, noting that the automaker did not have to acknowledge the subpoena related to the Delphi case.

A payment Delphi made to GM in 2000 was counted as pre tax income, while a credit GM gave to Delphi in 2001 was excluded from reported income, the Journal reported. Any improvement to profits in third-quarter 2000 simply made up for understated profits in previous reporting periods, said GM spokeswoman Toni Simonetti.

The 2001 transaction was the result of protracted discussions primarily about how to reconcile retiree health care accounts for employees who decided after the 1999 spin-off from the automaker whether to retire as GM employees or to stay with Delphi.

The specific treatments were not disclosed at the time — in late 2000 and 2001 — although they would have been discussed more thoroughly if such transactions happened now, a spokesman told the Journal.

Shares of GM fell 67 cents, or 2.3 percent, Wednesday to close $28.33. The stock has fallen to its lowest levels in a decade as the Detroit automaker struggles with higher costs for steel and oil, rising health care expenses and renewed market share losses in North America.

The accounting experts, mostly professors the Journal contacted, did not accuse GM of any particular accounting transgression, although many disagreed with GM’s assertion that the events were not large enough to be significant relative to GM’s overall business.

It is the world’s largest automaker, selling nearly 9 million cars and trucks worldwide last year, and third-largest business in the United States, with revenue of $193 billion last year.

But the transactions appear meaningful when compared with GM’s operating profits in the quarters in which they happened.

In the third quarter of 2000, Delphi paid GM $237 million related to warranty and recall costs. GM counted the payment as revenue, allowing the company to beat Wall Street expectations, rather than come up 28 cents a share shy, the Journal reported.

In the fourth quarter of 2001, GM credited $85 million to Delphi, which it did not treat as an expense but as an adjustment to the balance sheet related to the 1999 spin-off of the world’s largest auto-parts maker.

“These were adjustments to liabilities incurred prior to or at the time of the spin-off. … Delphi took away more liabilities, than, as it turns out, they should have,” Simonetti said.

The transactions came to light as part of Delphi’s own SEC investigation and ouster of its only chief financial officer, Alan Dawes, March 4.

Delphi said March 22 that it had inappropriately accounted for those transactions. The Troy-based parts maker has said its internal review is substantially complete and that it hopes to have previous quarters restated by mid year.

Delphi’s revelations, combined with Sarbanes-Oxley reviews of accounting practices, brought uncommonly harsh scrutiny of auto-industry accounting practices, which had previously been thought to be too well analyzed and understood for shenanigans to exist.

Beyond an SEC inquiry into pension accounting assumptions at GM, Delphi and Ford Motor Co., federal regulators have seen nepotism at Lear Corp., dozens of restatements at money-losing Visteon Corp. and admissions of insufficient accounting skills and processes at Collins & Aikman Corp.

But the Delphi case is the biggest and the only one connected to job losses. Along with Dawes, the company’s chief accounting officer left the company and a treasury vice president was reassigned to a non- officer position.

The situation at Delphi also has raised questions about GM, partly because some of Delphi’s questionable transactions involved the former owner and because GM groomed Delphi’s leadership, including Dawes and J.T. Battenberg III, the chairman and CEO who announced his retirement plans nine days before Dawes resigned.

Joe Whall, an Auburn Hills-based forensic accountant, Wednesday said it is too soon to pass judgment on these complicated accounting issues. “Obviously, it’s a big matter and a complex matter,” he said, noting that the companies and regulatory bodies are conducting a “potpourri of investigations.”

Separately, GM reported that its first-quarter market share in Europe hit a 6 -year high. Starting in the quarter, GM switched its Daewoo vehicles and dealers to the Chevrolet brand. As a result, Chevy sales rose 33.6 percent to 57,000, or 1.1 percent of the market, compared with the previous year’s sales of Chevrolet and Daewoo, said a GM spokesman.

Copyright 2005 Detroit Free Press. All Rights Reserved.

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