Four hundred MILLION dollars!

Whoops. This week, GM retracts its earnings report from four years ago, saying it overstated its profits by somewhere between $300-400 million dollars. The tendency with a story like this is to cry “fraud!” and then denounce corporate America for its inherently corrupt nature. Now, who can say what the cause is of this slip-up (blunder, goof, unbelievably huge mathematical oh-oh?)? But in the absence of the whole story, how proper is pessimism? Is it possible to be ambivalent toward GM and give them the benefit of the doubt?

Detroit auto is in a bad way (for other ways Detroit is in a bad way, see here). With Delphi in big trouble, SUV sales plummeting, and a $1.6 billion dollar third-quarter loss (that’s billion with a ‘b’), why would GM come out and report a mistake this embarrassing at the most inopportune time? If there is scandal and GM was involved in shady, Enron-like accouting, why would they fess up now? One could easily say they would get caught anyway (the SEC has an investigation going), but even so, why pile sorrow upon sorrow if you are trying to deceive people?

Speculation can be healthy only to a certain point. So let’s at least give them the benefit of the doubt. For once, let’s make a point of recognizing what seems to be–at least at this point–corporate honesty. (You won’t hear that in the news.) See, not all guys in suits are trying to take over the world.


  • Matt Huisman

    Speculation Alert: GM is currently negotiating with the union for concessions on grounds that they are in deep trouble…now the trouble is $300-400 million dollars worse.

  • http://www.schlacks.org John Powers

    Not really any worse at all. The cash reporting is the same, it is just the nebulous nature of financial and regulatory accouting that changes the reported earnings.

    I guarantee you GM’s lenders know enough about GM’s cash position and ability to pay off their future debts, regardless of reported earnings. These reported earnings are only there to keep the regulators and the stock analysts busy, they mean basically nothing in negotiatinos with employees, vendors, or bankers.

    JBP