Auto industry pile-up should come as no surprise

General Motors (GM) clearly surprised its shareholders yesterday by announcing the company's auditors said they had "substantial doubt about its ability to continue as a going concern." In other words, bankruptcy may be around the corner. That revelation sent the automaker's stock down 15.5 percent, to just $1.86, and dominated the headlines all day.

But the news shouldn't have been so shocking -- and more is probably on the way. After all, Grant Thornton, a major consulting firm with plenty of experience in the auto industry, warned more than two weeks ago that "a number of publicly traded companies in the automotive industry" could receive such warnings from auditors. And Lear (LEA), a major parts supplier, warned last week that it's likely to get a going-concern notice, too.

Since Chrysler shares aren't publicly traded and Ford (F) seems to be somewhat healthier than GM, it's suppliers like Lear that could face dire pronouncements from auditors -- and the consequences in the market.

The highly interconnected nature of the auto industry means that any trouble at the top reverberates throughout the entire ecosystem of parts manufacturers. If GM, Ford, or Chrysler falters, that means fewer opportunities for companies making drive trains or seat belts to sell their products.

Indeed, auto parts suppliers have long warned shareholders that a failure by one of the big three U.S. automakers would spell big trouble for their businesses.

"If GM cannot fund their operations, or if other major customers reach a similar level of financial distress, we may incur significant write offs of accounts receivable, incur impairment charges or require additional restructuring actions beyond our current restructuring plans," Johnson Controls (JCI), a big parts maker, cautioned in its annual report, released last November.

Translation: Major pain awaits if GM drives off a cliff. Investors realized that and sent the company's shares down 11 percent yesterday.

Though the bulk of earnings season is now past, a few companies in the auto industry still haven't filed their annual reports with the Securities and Exchange Commission. That's where going-concern notices like GM's could show up. If auditors raise more red flags, investors shouldn't be surprised. After all, they've been warned.

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