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The already bleak outlook for General Motors Corp. became a little gloomier late Wednesday when the automaker said it would restate its 2001 earnings because of accounting errors. Detroit-based GM said in a Securities and Exchange Commission filing that it overstated 2001 earnings by up to $400 million because it erroneously booked credits received from suppliers immediately, instead of over time. GM said it would restate earnings for 2001 and perhaps for subsequent years before releasing its 2005 annual report next year. The restatements, while minor on their own, add to the long list of woes facing GM and Richard Wagoner, its embattled chief executive. The Detroit-based automaker, which lost $2.5 billion in the first half of the year in its North American automotive division, is struggling to drive down costs and revamp its operations. Banc of America Securities LLC analyst Ronald Tadross said Thursday that the restatement is likely to turn up the heat on management and increases the chances GM will wind up in bankruptcy court. “If current GM management is changed, new management could look at a bankruptcy-led balance sheet reorganization as a more realistic realignment tool,” Tadross wrote. “We continue to believe this decision is inevitable.” Tadross said there is a 40 percent chance the company would file for Chapter 11 protection within two years, up from 30 percent before it disclosed its restatement. The analyst estimates the company faces a pricing disadvantage on its models equivalent to $3,500 per unit due to its high costs and pension and health care commitments. GM also faces new liabilities that could total $10 billion stemming from former subsidiary Delphi Corp., which is now in bankruptcy. GM could be forced to assume benefits Delphi employees forfeit as the auto parts company reorganizes under court supervision. GM already has initiated a campaign to cut its costs outside the courts. The company has negotiated an agreement with its powerful United Auto Workers union that would save the manufacturer $1 billion annually in health care costs, and it has initiated a restructuring campaign aimed at saving $2.5 billion per year by streamlining its operations. Yet some question if Wagoner and the company have time to complete such a massive restructuring. GM, which already faces an investigation by securities regulators into its accounting practices, also faces pressure from billionaire investor Kirk Kerkorian, owner of a 9.9 percent stake in the company. Kerkorian and other shareholders saw their GM stock reach a new 52-week low Thursday after the restatement. Shares fell more than 5 percent, to $23.15 per share, in afternoon trading. “This latest setback is another blow to management’s credibility,” one automotive industry banker said. “The story just keeps getting worse.” Despite the challenges, many in the industry still believe GM will avoid bankruptcy. The company and its potent General Motors Acceptance Corp. financing unit have between them nearly $40 billion in cash to survive the current downturn. GM is selling a controlling stake in GMAC, with industry sources listing Bank of America Corp. and General Electric Co. as the two favorites for the unit. Any sale would provide the company with an additional cash cushion. Copyright �2005 TDD, LLC. All rights reserved.

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