Fitch Ratings Lowers GM & GMAC to 'BBB-'; Outlook Remains Negative.

CHICAGO -- Fitch Ratings has downgraded the credit ratings of General Motors Corporation (GM), General Motors Acceptance Corporation and affiliated entities to 'BBB-' from 'BBB'. The Rating Outlook remains Negative. Fitch also lowers the commercial paper rating of both entities to 'F3'. A full list of affected entities is listed below.

The downgrades are based on the continuing deterioration in GM's market share and operating profile, the expectation of negative cash flow over the near term as GM adjusts its inventory through production cuts, and the potential for even further balance sheet deterioration through early 2006 as GM weathers the depth of its product cycle. In addition, GM is being particularly impacted by adverse sales mix, as declining sales in the large SUV and large pickup markets (which represent the bulk of GM's operating profitability) have deteriorated over the last several months. Changing consumer preferences and increased competition could make this sector, and GM, particularly hard hit over the near term. GM has accelerated the pace of product introductions in 2005, but new products have been concentrated in the less profitable segments. GM's critical product launch will be the 900 series which will be introduced beginning in early 2006. GM's difficulties are augmented by its high and inflexible cost structure, unrelenting price competition, continued industry expansion and over-capacity, and increasing raw material and legacy costs. In addition, this has occurred amidst a relatively favorable economic growth environment.

Stabilization of the ratings will require stemming market share losses, further improvements to the company's cost position so that GM is able to sustain consistent free cash flow during a period of steady economic growth, successful product launches across a wider range of its product portfolio, and stabilization of the balance sheet. Ratings could fall to non-investment grade if Fitch expects that continuing adverse trends in volumes, sales mix and pricing necessitate further material production cutbacks in the second half of 2005, incremental negative free cash flow through 2005 beyond current expectations, continuing balance sheet deterioration, and if Fitch expects these trends to persist through 2006. Fitch is also concerned that continuation of existing sales trends has raised the level of event risk -- the risk of accelerated restructuring moves, brand rationalization, and the potential for increased labor strife as GM attacks its cost structure. The Outlook remains Negative and indicates that the rating could be reviewed for further action at any time that new information would warrant it.

GM's liquidity remains healthy, with approximately $23 billion in cash and s/t VEBA on hand at yearend. GM's balance sheet has deteriorated over the past several years, with debt increasing substantially in 2003 in order to fund the company's US pension plans. The company has also sold off various assets with proceeds contributed to its pension plans. Debt levels increased to $32.5 billion at yearend 2004 from $16.3 billion at yearend 2002. GM retains access to $8.3 billion in committed credit lines ($6.5 billion in committed facilities and $1.8 billion in uncommitted facilities).

Over the intermediate term, Fitch will be focused on the company's ability to arrest market share losses through attractive new product offerings and its capacity to address its cost structure. GM's GMT-900 platform, to be introduced in early calendar 2006, will serve as the basis for a number of product launches in the large SUV and pickup segments. This will serve as a critical platform for GM in order to maintain its position in this segment. Continued transplant expansion and the accelerated pace of product refreshment in the industry, however, indicate that even in the event of a successful launch, the window to maintain pricing may be relatively short. In addition, the breadth of GM's brand and product portfolio make it essential that GM produce successful vehicles across a much broader spectrum of its offerings. GM's high cost structure makes it particularly vulnerable to production cutbacks. As GM adjusts its inventory through production cutbacks in the first half, substantial negative cash flow will result, reducing GM's liquidity cushion. If sales trends continue, this negative cash flow could be exacerbated through yearend 2005.

GM's cost structure remains competitively disadvantaged, as GM has been unable to ratchet down its costs in line with its declining market. In particular, GM's health care costs continue to increase at roughly $500-600 million per year, and could approach $6 billion in 2005. Approximately 2/3 of these expenditures are related to retiree health care. Fitch views the pace of these cost increases as unsustainable, and GM may be forced to explore this issue with the union prior to 2007. GM has aggressively funded its long-term VEBA accounts, which now stand at approximately $20 billion. Earnings on this portfolio will help to offset rising health care costs, and the size of the portfolio adds to GM's flexibility in meeting these obligations over the near term.

Concerns also focus on GM's performance in Europe, where despite some recent share gains, the company has been unable to reverse years of losses. Focused production in high and inflexible cost locales places GM and other entrenched competitors at a competitive disadvantage versus transplants that are increasingly locating production in low-cost Eastern European locations. Improved distribution has also allowed the transplants to gain share. Operating improvements at GM are likely to be accomplished only on a gradual basis, and it is Fitch's view that further significant restructuring actions may be required.

The ratings actions on GMAC primarily reflect its ownership and strategic importance to GM. Aside from this, Fitch believes that GMAC has performed well in terms of operating performance and credit quality in both its auto finance and mortgage businesses. Moreover, Fitch recognizes actions taken by GMAC to bolster liquidity such as increased whole-loans sales and securitization of auto finance receivables as well as movement away from institutional debt markets. As such, Fitch views near-term liquidity to be sound; however, this could be negatively affected longer-term if GM's rating falls further.

Ratings downgraded by Fitch:

General Motors Acceptance Corp.

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Short-Term Issuer to 'F3' from 'F2';

-- Senior Unsecured to 'BBB-' from 'BBB';

-- Senior Shelf to 'BBB-' from 'BBB' ;

-- Short-Term Debt to 'F3' from 'F2';

-- Commercial Paper to 'F3' from 'F2'.

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

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Short-Term Issuer to 'F3' from 'F2';

-- Commercial Paper to 'F3' from 'F2'.

General Motors Acceptance Corp. of Canada Limited

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Senior Unsecured to 'BBB-' from 'BBB';

-- Commercial Paper to 'F3' from 'F2'.

General Motors Acceptance Corporation, Australia

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Short-Term Issuer to 'F3' from 'F2';

-- Senior Unsecured to 'BBB-' from 'BBB';

-- Commercial Paper to 'F3' from 'F2'.

General Motors Acceptance Corporation (U.K.) plc

-- Short-Term Issuer to 'F3' from 'F2';

-- Commercial Paper to 'F3' from 'F2'.

General Motors Corp.

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Short-Term Issuer to 'F3' from 'F2';

-- Senior Unsecured to 'BBB-' from 'BBB';

-- Commercial Paper to 'F3' from 'F2'.

General Motors of Canada Limited

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Short-Term Issuer to 'F3' from 'F2';

-- Senior Unsecured to 'BBB-' from 'BBB';

-- Commercial Paper to 'F3' from 'F2'.

GMAC Australia (Finance) Limited

-- Commercial Paper to 'F3' from 'F2'.

GMAC Bank

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Short-Term Issuer to 'F3' from 'F2'.

GMAC Commercial Mortgage Bank

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Short-Term Issuer to 'F3' from 'F2'.

GMAC Bank GmbH

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Short-Term Issuer to 'F3' from 'F2';

-- Senior Unsecured to 'BBB-' from 'BBB';

-- Commercial Paper to 'F3' from 'F2'.

GMAC Commercial Mortgage Bank Europe, plc

-- Short-Term Issuer to 'F3' from 'F2';

-- Short-Term Deposits to 'F3' from 'F2';

-- Commercial Paper to 'F3' from 'F2'.

GMAC Commercial Mortgage Funding, plc

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Senior Unsecured to 'BBB-' from 'BBB'.

GMAC Commercial Mortgage Japan K.K.

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Short Term Issuer to 'F3' from 'F2'.

GMAC International Finance B.V.

-- Long-Term Issuer to 'BBB-' from 'BBB';

-- Short-Term Issuer to 'F3' from 'F2';

-- Senior Unsecured to 'BBB-' from 'BBB';

-- Commercial Paper to 'F3' from 'F2'.

Ratings affirmed by Fitch:

GMAC Bank

-- Support '2';

-- Individual 'B/C'.

GMAC Commercial Mortgage Bank

-- Support '2';

-- Individual 'B/C'.