Printer Friendly

GM, GMAC $48 BILLION SENIOR DEBT LOWERED TO 'A-' BY FITCH

 NEW YORK, Jan. 13 /PRNewswire/ -- General Motors Corp.'s (GM) senior debt is lowered to 'A-' from 'A+' and its preferred and preference shares to 'BBB+' from 'A' by Fitch. General Motors Acceptance Corp.'s (GMAC) senior debt and medium-term note rating is lowered to 'A-' from 'A+'. All ratings are removed from FitchAlert where they were placed with negative implications on Nov. 4. GMAC's 'F-1' commercial paper ratings are affirmed.
 Total amounts affected by these actions are as follows: $7 billion of GM senior debt and $4.7 billion GM preferred and preference shares, as well as $41 billion of GMAC senior debt. Approximately $16 billion of GMAC commercial paper is currently outstanding. GM's credit trend is improving while GMAC's credit trend is stable. The credit trend is an indicator of expected financial performance over the near term.
 GM's management and organizational process changes focus on accountability and performance, and are designed to return the enterprise to sustained profitability. Robust and specific actions, targets, and programs are in place, with the goal of moving North American Operations (NAO) to breakeven and the enterprise to profitability in 1993. Actions address all operating issues: costs, capacity, components, products, and sales networks. Specific targets and timetables are established for plant closures, capacity reductions, workforce reductions, platform consolidations, and profitability. Evidence of this turnaround is found in the halving of NAO operating losses to $3.6 billion and the enterprise approaching net income breakeven for the first nine months of 1992. The erosion in GM's overall U.S. 1992 car market share reflected GM's strategic decision to reduce sales to daily rental fleets. However, the richer product mix contributed to the NAO improvement.
 Outside North America, GM's automotive operations remain solidly profitable, and market share in Europe continues to advance, with GM now in second place after Volkswagen. Hughes and EDS are market leaders, solidly profitable, and self-financing.
 Financial actions have included halving the common dividend while maintaining relatively stable capital outlays to protect the new product program. With anticipated earnings progress, GM's cash generation could improve substantially, easing pressures to access the preferred and equity markets. GM has the potential to be cash flow breakeven in 1993, in contrast to the $1 billion average quarterly cash drain in first nine months of 1992.
 Going forward, concerns arise from the expectation that domestic car and truck demand is likely to improve only gradually, while other key markets, such as Germany and France are weakening. Thus, earnings and cash flow objectives could take longer to achieve. Importantly, as automotive earnings recoveries are driven as much by new product success as by market factors, GM must be successful in introducing well received vehicles, in the face of intense competition from others' attrctive offerings. If this cannot be achieved, and market share weakens further, GM's 5.4 million NAO capacity target may still not allow high operating rates. Although management appears to be building an improved relationship with the UAW leadership, the parties must negotiate a new labor agreement to replace the one expiring in September 1993. While the UAW now realizes that GM cannot live with another contract such as the one it has, negotiations could be tough, particularly with respect to job security and health care issues.
 GM's financial flexibility will be limited until cash flows recover. The company's ability to tap the markets for additional large equity and preferred issues is limited after large financings over the last two years. Generous "financial safety nets" for worker separations have drained cash. GM's unfunded pension liability, estimated at over $11 billion, must somehow be reduced. GM also faces a $16-$24 billion non-cash charge when it adopts FAS 106. If operating performance were to deteriorate, GM could generate additional cash from asset sales, further dividend cuts, and upstreamed dividends from GMAC as it downsizes.
 Worldwide environmental and safety concerns are increasing, reflected in ever more stringent regulations. The cost to develop responses such as zero emissions vehicles, and to eliminate CFCs from air conditioners, continues to rise. Although the new Clinton administration is listening to the Big Three's concerns, stiff gasoline tax increases to raise revenue and balance the budget could be adopted. These developments could translate into consumers' shift to smaller and lower margin vehicles.
 Affirmation of GMAC's F-1 commercial paper (CP) rating reflects its good liquidity despite reduced access to the CP markets. Short-term creditors enjoy very strong asset coverage, and management is taking prudent steps to preserve liquidity.
 The lowering of GMAC's senior debt rating takes account of the cyclical and strc?tural difficulties at GM and their impact on GMAC's operations and profitability. As parent company downgrades have been mirrored at GMAC, short-term funding availability has declined and borrowing costs have increased. Until now, these parent company pressures were countered with lengthened debt maturities and increased securitization activity, with little effect on the financing business. However, as these pressures continued, GMAC recently announced that it will pare its financing of non-GM products, an action which will impact financial performance. Without that business, GMAC will remain solidly profitable, but at lower levels.
 As a stand-alone company, GMAC continues to perform well. With almost $100 billion of assets, GMAC is one of the nation's largest and most consistently profitable financial institutions. For the eighth straight year in 1992, GMAC will have more than $1 billion of net income. Through the first nine months of 1992, GMAC earned 1.25 percent on assets, upstreamed dividends of $800 million to GM, and reduced its leverage to 8.9 times, the lowest level in recent history. Asset quality is also good despite the recession.
 GM is the world's largest producer of passenger cars and light trucks. GMAC provides wholesale and retail financing for GM products.
 -0- 1/13/93
 /CONTACT: Mary Anne Sudol, CFA of GM, 212-908-0562, or Nancy E. Stroker, CFA of GMAC, 212-908-0533/
 (GM)


CO: General Motors Corp.; General Motors Acceptance Corp. ST: Michigan IN: AUT SU: RTG

SH -- NY014 -- 4374 01/13/93 09:55 EST
COPYRIGHT 1993 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Jan 13, 1993
Words:1003
Previous Article:PROCTER & GAMBLE'S NEW ULTRA DOWNY BOTTLE CONTAINS 100 PERCENT POST-CONSUMER RECYCLED PLASTIC
Next Article:NEWS AMERICA FSI, KRAFT GENERAL FOODS, AGREES TO A TWO-YEAR DEAL; POSSIBLE TIE-INS TO FOX PROPERTIES CONSIDERED
Topics:


Related Articles
GM AND GMAC RATINGS PLACED ON FITCH ALERT NEGATIVE -- FITCH FINANCIAL WIRE --
GM, GMAC RATINGS AFFIRMED BY FITCH AFTER GMHE ANNOUNCEMENT -- FITCH FINANCIAL WIRE --
GMAC COMMERCIAL PAPER AFFIRMED; GM, GMAC SENIOR DEBT ON FITCHALERT NEGATIVE -- FITCH FINANCIAL WIRE --
GENERAL MOTORS ACCEPTANCE CORP. $300 MILLION 7.125% NOTES DUE 1999 RATED 'A-' BY FITCH -- FITCH FINANCIAL WIRE --
DUFF & PHELPS CREDIT RATING CO. REAFFIRMS EDS, GM AND GMAC DEBT RATINGS
GENERAL MOTORS $500 MILLION DEBENTURES RATED 'A-' BY FITCH -- FITCH FINANCIAL WIRE --
DCR REAFFIRMS 'A-' SENIOR DEBT RATINGS OF GM AND GMAC
GM, GMAC 'A-' SENIOR DEBT, 'F-1' CP RATINGS AFFIRMED BY FITCH -- FITCH FINANCIAL WIRE --
GM, GMAC 'A-' SENIOR DEBT RATINGS AFFIRMED BY FITCH - FITCH FINANCIAL WIRE -
GM, GMAC Ratings Affirmed By Fitch IBCA On Delphi Separation - Fitch Financial -

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters