March 29 (Bloomberg) -- General Motors Corp. bonds and shares fell after its largest supplier moved closer to a strike and the automaker disclosed new federal subpoenas.

The United Auto Workers rejected a contract offer from Delphi Corp., GM's former parts unit, pushing the parties closer to a strike that could shut the automaker. GM also said in its annual report yesterday that it incorrectly recorded cash flows at a finance unit from 2002 through 2005. Moody's Investors Service downgraded GM's credit rating today one level to B3.

``If there is a long strike, they're both out of business,'' said Burnham Securities Inc. analyst David Healy, who owns some debt issued by GM's finance unit. ``Delphi and GM, whether they like it or not, they're in bed together. They need each other to survive.''

GM, the world's largest automaker, may be forced to halt production and file for bankruptcy protection should Troy, Michigan-based Delphi stop making parts, analysts such as Healy have said. Subpoenas related to the sale and repurchase of precious metals and another set about supplier credits added to the obstacles facing GM Chief Executive Officer Rick Wagoner.

GM's chief is trying to cut annual costs by $7 billion after losses of $10.6 billion in 2005. The Detroit-based company fired hundreds of salaried U.S. employees yesterday, part of the plan to trim expenses.

The automaker is searching for buyers for a majority stake in General Motors Acceptance Corp., its profitable finance unit. GM reiterated in its filing yesterday that a sale isn't certain. It wants to sell a controlling stake so GMAC can regain an investment-grade rating.

Shares, Bonds

GM shares fell 60 cents, or 2.6 percent, to $22.15 at 4:16 p.m. in New York Stock Exchange composite trading. They have gained 14 percent this year on optimism that cost cuts and sales of new models will reduce losses. The stock dropped 52 percent in 2005 as GM's share of the U.S. market fell to its lowest since 1925 and more people bought vehicles from Toyota Motor Corp. and other Asian automakers.

The company's 8.375 percent note due in 2033 fell less than a cent on the dollar to 73.56 cents to yield 11.58 percent as of 3:56 p.m. New York time, according to Trace, the bond-price reporting service of the NASD.

Delphi Proposal

Delphi's latest proposal ``wasn't even close'' to something union leaders could submit to rank-and-file workers for a ratification vote, said Paul Krell, a UAW spokesman. The union has threatened to strike should Delphi ask a bankruptcy court for permission to void its existing labor contract and impose new terms, a move the company has said it will take if an agreement isn't reached by March 31.

``The UAW is doing what they always do, negotiating in the media,'' Healy said. ``My guess is they will ultimately settle and at worst there will be short strike.''

GM said in its filing yesterday that it's also considering negotiating new terms for a $5.6 billion line of credit because the restatements may mean it's unusable.

Moody's downgraded GM one level to B3, six levels below investment grade, because the restatements threaten the use of the $5.6 billion loan and may result in the acceleration of as much as $3 billion in lease obligations. The outlook is negative, meaning GM's rating is more likely to be cut again than raised, Moody's said in a statement.

S&P put GM's B long-term rating, which is five levels below investment grade, on Creditwatch with negative implications, meaning it may be lowered. S&P cited the possibility that GM may need to renegotiate the credit line.

GM's Liquidity

``This is a potentially more serious issue for GM'' than the restatement itself, said Philip Watkins, a credit analyst at Commerzbank AG in London. ``Right now, investors should be more concerned about GM's liquidity and the situation with Delphi.''

``The Delphi situation is out of GM's control, but it has potentially much more of an impact than yesterday's filing, which had no real impact on underlying cash flow,'' he said.

The automaker also said in the filing that it ``recently'' received Securities and Exchange Commission subpoenas related to selling and then repurchasing precious metals and a federal grand jury subpoena relating to supplier credits.

GM said in October that it had received SEC subpoenas about supplier cost reductions and credits. The company said March 16 that it was restating some of its results after its own review of the accounting for those credits.

Supplier credits are generally cash an auto-parts maker would pay to GM in exchange for future business or as an advance on future price cuts. GM has since forbidden that practice, according to the filing.

The automaker, Delphi and the UAW reached agreement last week on retirement incentives and buyout offers for all of GM's hourly workers and 18,000 Delphi employees.

Fitch Ratings rates GM an equivalent B, five levels below investment grade. Fitch has said it may cut the rating.

GMAC is rated Ba1 by Moody's, one level below investment grade, and a level lower at Fitch and S&P, at BB.

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; Jennifer Ryan in London at jryan13@bloomberg.net.

Last Updated: March 29, 2006 16:30 EST