What Does GM Really Think About The Volt?

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John Petersen

I love IPO registration statements because they have to provide full and fair disclosure of all material facts and forward-looking statements must “bespeak caution.” The following quote from the risk factors section on page 19 of the prospectus included in the Form S-1 Registration Statement that NewGM filed yesterday says everything you need to know about the Volt and the other plug-in vehicles that currently reign as media darlings.

“In some cases, the technologies that we plan to employ, such as hydrogen fuel cells and advanced battery technology, are not yet commercially practical and depend on significant future technological advances by us and by suppliers. For example, we have announced that we intend to produce by November 2010 the Chevrolet Volt, an electric car, which requires battery technology that has not yet proven to be commercially viable. There can be no assurance that these advances will occur in a timely or feasible way, that the funds that we have budgeted for these purposes will be adequate, or that we will be able to establish our right to these technologies. However, our competitors and others are pursuing similar technologies and other competing technologies, in some cases with more money available, and there can be no assurance that they will not acquire similar or superior technologies sooner than we do or on an exclusive basis or at a significant price advantage.”

While I don’t hold myself out as being qualified to analyze GM’s business there were a couple of line items on its balance sheet that concern me. At December 31, 2008, OldGM had $91.0 billion in total assets, including $46.7 billion in non-current assets. At December 31, 2009, NewGM had $136.3 billion in assets, including $77.0 billion in non-current assets. When I went through and did a line by line comparison the major changes boiled down to three line items that were insignificant on OldGM’s balance sheet but massive on NewGM’s balance sheet.

  • NewGM reflects $30.7 billion of goodwill where OldGM didn’t have any;
  • NewGM reflects $14.5 billion of intangible assets where OldGM only had $0.3 billion; and
  • NewGM reflects $22.0 billion of stockholders’ equity where OldGM had an $85.1 billion deficit.

I don’t claim to be an expert in fresh-start accounting or the incredibly complex valuation estimates that generally accepted accounting principles require in a bankruptcy reorganization, but it strikes me as more than passing strange that a bankruptcy could create $45 billion in intangible asset values and stockholders’ equity that didn’t exist before OldGM failed.

Disclosure: None.


  1. “Our management team for financial reporting, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our internal controls. At December 31, 2009, because of the inability to sufficiently test the effectiveness of remediated internal controls, we concluded that our internal control over financial reporting was not effective. At June 30, 2010 we concluded that our disclosure controls and procedures were not effective at a reasonable assurance level because of the material weakness in our internal control over financial reporting that continued to exist. Until we have been able to test the operating effectiveness of remediated internal controls and ensure the effectiveness of our disclosure controls and procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner. In addition, although we continually review and evaluate internal control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. Any such additional weakness or failure to remediate the existing weakness could materially adversely affect our financial condition or ability to comply with applicable financial reporting requirements and the requirements of the Company’s various financing agreements.”
    That may be the reason why your view had came up.

  2. The internal control weaknesses don’t have any impact on the addition of $45 billion of fluff to the balance sheet. That’s purely the application of accounting principles without thinking about whether the final result is rational.
    When I was a baby accountant, GAAP was internally consistent and made logical sense. The pronouncements over the last couple decades have taken a lot of the common sense out of the profession and replaced it with rote formulas that all to often lead to absurdly misleading results.

  3. I have not been following the GM saga closely, but isn’t it likely that the new stockholders’ equity is our money, in the form of the investment by the federal gov’t?

  4. The financial statements in the Form S-1 show that OldGM had $91 billion in total assets and NewGM had $136 billion. When I did a line-by-line comparison of the changes, the two that leapt off the page were $30.6 billion in newly recognized goodwill and $14.3 billion in newly recognized intangible assets.
    If it was a real addition to assets other accounts would have changed.


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