GM AND GMAC RATINGS PLACED ON FITCH ALERT NEGATIVE -- FITCH FINANCIAL WIRE --
GM AND GMAC RATINGS PLACED ON FITCH ALERT NEGATIVE
-- FITCH FINANCIAL WIRE --
NEW YORK, Nov. 14 /PRNewswire/ -- General Motors Corp.'s and General Motors Acceptance Corp.'s (GMAC) "AA-" senior debt ratings and GMAC's "F-1+" commercial paper rating are placed on Fitch Alert with negative implications.
GM's losses have been greater than expected, caused primarily by a combination of persistently weak U.S. economic and auto market conditions and the company's still relatively high cost structure. It now appears that a U.S. economic recovery will not begin until well into 1992, putting further stress on the company's financial position and fundamental credit quality.
As the recession developed, GM put in place a series of substantial cash conservation and operating actions to dampen the impact of these pressures and to ensure its forward profitability. The company's market shares remain firm in the U.S. and have improved in Europe. Capital spending has continued at strong levels, and new product flow remains robust worldwide. Although cash flow has declined with earnings, it still provides reasonable coverage for the current higher debt level.
The primary concern for GM remains restoring profitability in its U.S. automotive operations, which may take some years. Until this occurs, enterprise earnings enjoy support from other key earnings sources: European automotive operations, GMAC, EDS, and GMHE. However, there is uncertainty as to whether North American profitability can ultimately be restored to former levels, given the heightened competition in that marketplace from strong, well-capitalized overseas automakers.
GM has recently disclosed the potential impact of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", on its financial statements. Adoption will not affect GM's cash, cash flow, or ability to finance its product spending, and thus will not be a key consideration in Fitch's review of the ratings. However, it underscores GM's efforts to find continuing cost reductions to maintain its competitiveness.
Despite pressures in its parent's operations, GMAC continues to post strong and consistent earnings of more than $1 billion annually. The company enjoys strong capitalization, a liquid asset mix and solid business position. Should this review result in a long-term debt downgrade, GMAC's commercial paper rating will not fall below "F-1."
/CONTACT: Mary Anne Sudol, 212-908-0562 or Nancy E. Stroker, 212- 908-0533, both of Fitch/
(GM) CO: General Motors Corp. ST: Michigan IN: AUT SU: RTG SH -- NY090 -- 4533 11/14/91 15:42 EST