Fitch Ratings Affirms Debt Of GM & GMAC; Outlook Remains Negative.

Business Editors

CHICAGO--(BUSINESS WIRE)--May 4, 2004

Fitch Ratings has affirmed the senior unsecured debt of General Motors Corporation (GM) and its financial services subsidiary, General Motors Acceptance Corp. (GMAC) and related entities at 'BBB+'. Fitch affirms the corresponding commercial paper ratings at 'F2'. The Rating Outlook remains Negative.

Ratings for GM are supported by GM's gross liquidity position, the extended nature of its debt maturity schedule, a competitive product portfolio (particularly in the vital truck segment), an improved product mix in North America, strong performance in the Asia Pacific region and strong profitability at GMAC. Key concerns include pricing pressures in both the U.S. and Europe, the near-term competitive position of the company's truck portfolio where GM faces new competitive threats with potentially dated products, a car portfolio that remains weak (albeit improving), and significant post-retirement benefit obligations.

Of particular concern is the continuing pace of escalation in health care costs, which disproportionately disadvantages GM due to its legacy liabilities, and represents a significant cost headwind going forward. GM is currently positioned to generate substantial cash flow that should enable it not only to fund its current operations and obligations (including healthcare/pension costs), but could also enable it, over a period of time, to begin to pay down debt. Debt levels were substantially increased in 2003 to pre-fund pension obligations, returning GM to a net debt position and imposing incremental financial expenses of approximately $1 billion.

Overall, GM's product portfolio continues to perform, with new product introductions continuing to proceed on time and with expected (and improving) levels of quality. New/refreshed products such as the Colorado/Canyon, Equinox, and the Cadillac STS should continue the product momentum that GM has established over the last several years. Concerns remain, however, surrounding the Buick, Pontiac, and Saturn brands as all three continue to struggle.

New products, of which there are several in the pipe-line, could improve the fortune of these brands, which declined competitively while GM was creating its strong truck portfolio over the last five to seven years. In addition, the aging of the full-size and mid-size truck/utility portfolio will begin to be of greater importance as these somewhat dated products (although several have or will get minor refreshes before their next major update) will face increasing levels of competition going forward. The competitive position of the truck portfolio is especially important given the substantial truck stock build in first-quarter (Q1) 2004, which can only be alleviated via an increase in industry volumes (perhaps due to an improved economy) or via market share gains.

Given that much of the stock-build is in existing products, it is likely that in the absence of a substantial up-tick in industry volumes that these units will need to be moved using higher incentives. This would obviously negatively impact profit margins in the key truck segment. Of perhaps even greater concern, however, is the substantial number of recalls in the first four months of the year. Although most of these products were designed in the mid to late 1990s when many automotive manufacturers perhaps focused less on quality then they do today, the current rash of recalls could still potentially damage GM's carefully nurtured reputation for improving quality.

Beyond the U.S. market, GM Europe and GM LAAM appear to be stabilizing while GM Asia Pacific continues to produce extremely strong automotive results for the corporation. In GM Europe, Project Olympia is nearing fruition as new product launches such as the Astra are combining with a focus on cost cutting to enhance overall unit performance. Going forward, Fitch anticipates that GM Europe will be a positive contributor to corporate income, but that it likely will not restore the margins of the past in light of increased competition now present in Europe.

The future of GM LAAM is far more uncertain as much of its success is based upon the various regional economies. Despite that fact, GM has taken actions to restore profitability and should see improved results in 2004. Much like GM Europe, the results are unlikely to approach those of its 1990s high point. Of all the regions, the major success story is GM Asia Pacific, where GM's alliance strategy, in combination with a strong presence in China, is producing solid results. Despite GM's very strong China position and attractive near-term prospects in the region, the potential for economic swings and significant volatility exist.

GM's retiree benefit programs remain a concern, despite frequent and substantial contributions to its pension and OPEB plans (in excess of $20 billion in 2003). When combined with good asset performance, 2003 contributions in excess of $18 billion have pushed GM's pension cash funding requirements out into the next decade. Of note, should interest rates rise as expected, GM's U.S. hourly and salaried pension plans could be substantially over funded at year-end. Regardless, GM's pension expense should continue to decline as the impact of the contributions, asset performance, and the roll-through of the asset loss accruals all begin to exert positive influence on the components of pension expense.

In the area of OPEB, GM has placed substantial funds into its VEBA Trusts in an effort to begin defeasing its legacy health care costs. The VEBA Trusts, with projected assets of in excess of $15 billion as of Q1 2004, would be sufficient to fund 4-5 years of OPEB costs, providing GM a significant cushion to recover from the impacts of any economic downturn in the industry. That being said, GM's OPEB plans are still over $40 billion under-funded. Although much has been done to mitigate some of the impact of these benefit programs, they have been, and continue to be, a drag on GM's operating profile as they can limit GM's flexibility and can often impact business decisions. Examples include vehicle incentives where GM continues to push hard in order to generate stable and/or increasing volumes as a means to more easily cover these and other fixed costs.

General Motors Acceptance Corp. (GMAC) remains an integral part of GM, and thus the ratings of GMAC are linked to those of GM. GMAC automotive and mortgage finance operations have performed well, and have been increasingly significant contributors to GM earnings. Fitch believes that GMAC maintains solid liquidity over the intermediate term to support its operations. Asset quality of the automotive finance portfolio has modestly weakened owing to pressures on used car prices, but remains at acceptable levels. Fitch notes that the losses in the securitized portfolio are modestly better than the losses of the owned automotive finance portfolio. Fitch recognizes improvements in capitalization and leverage at GMAC, which is commensurate with the current rating. Rating concerns for GMAC reflect the cyclical nature of mortgage banking and trend in longer average maturities in the automotive finance portfolio.

Ratings affirmed by Fitch:

General Motors Corp.

-- Senior Debt 'BBB+'.

General Motors Acceptance Corp.

-- Senior Debt 'BBB+'.

General Motors Acceptance Corp. of Canada

-- Senior Debt 'BBB+'.

GMAC Australia (Finance) Ltd.

-- Senior Debt 'BBB+'.

GMAC International Finance B.V.

-- Senior Debt 'BBB+'.

General Motors Acceptance Corp. Nederland N.V.

-- Senior Debt 'BBB+'.

Opel Bank GmbH

-- Senior Debt 'BBB+'.

General Motors Acceptance Corp. (N.Z.) Ltd.

-- Senior Debt 'BBB+'.

GMAC Commercial Mortgage Bank Plc.

-- Senior Debt 'BBB+'.

GMAC Commercial Mortgage Japan K.K.

-- Senior Debt 'BBB+'.

General Motors Corp.

-- Commercial Paper 'F2'.

General Motors Acceptance Corp.

-- Commercial Paper 'F2'.

General Motors Acceptance Corp. (U.K.) Finance Plc.

-- Commercial Paper 'F2'.

Opel Bank GmbH

-- Short-term 'F2'.

GMAC Commercial Mortgage Bank Plc

-- Euro Commercial Paper 'F2';

-- Short-term deposits 'F2'.

General Motors Acceptance Corp. (N.Z.) Ltd.

-- Commercial Paper 'F2'.

GMAC Commercial Mortgage Japan K.K.

-- Short-term 'F2'.