UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 24, 2005
GENERAL MOTORS CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE 1-143 38-0572515
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(State or other jurisdiction of (Commission (I.R.S. Employer
Incorporation or Organization) File Number) Identification No.)
300 Renaissance Center, 48265-3000
Detroit, Michigan (Zip Code)
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (313) 556-5000
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 8.01. OTHER EVENTS
On May 24, 2005, Fitch Ratings announced in a press release that it lowered its
ratings on General Motors Corporation (GM) and General Motors Acceptance
Corporation (GMAC). Their press release follows.
Fitch Downgrades GM & GMAC to 'BB+'; Outlook Remains Negative
24 May 2005 11:51 AM (EDT)
Fitch Ratings-Chicago-May 24, 2005: Fitch Ratings has downgraded the senior
unsecured ratings of General Motors, GMAC and the majority of affiliated
entities to 'BB+' from 'BBB-'. The Rating Outlook for GM remains Negative.
(Please see the GMAC section below for separate rating actions associated with
individual affiliates of GMAC, and the bottom of the press release for a full
list of rating actions).
The action reflects the continuing decline in GM's North American sales of key
mid-size and large SUV products, increasing product and price competition in the
large pickup market, and the corresponding impact of these two segments on
consolidated profitability. Fitch believes that declining volumes and
profitability, coupled with lack of tangible progress in attacking manufacturing
and legacy costs will result in negative cash flow through at least 2006.
In 2005, Fitch estimates that negative cash flow could be in the range of $6
billion, attributed primarily to operating losses, the payment to Fiat, and
working capital drains. The current trough in GM's product cycle, the potential
for further production cutbacks, supplier issues and required investments in
critical new products all point to a difficult transition period through the
remainder of 2005. Event risk, (which could include more fundamental
restructuring actions or efforts to cut health care costs), remains high and
could entail increased labor strife. GM's current revenue and cost issues have
occurred despite healthy economic conditions and solid industry sales volumes,
increasing concern about GM's performance in a potential economic downturn.
Liquidity remains healthy through cash holdings at GM and GMAC, L/T VEBA
holdings and monetizable assets at GMAC.
GM's sales of mid-size and large SUVs have declined well in excess of 20% YTD,
demonstrating a clear trend away from GM's most significant source of segment
profitability. GM is not positioned well in the growing crossover segment, and
new product introductions in the car segment have been lower-impact in terms of
their impact on consolidated operating results. Volumes and margin in these
segments are not expected to offset the large decline in profitability
previously achieved on GM's larger vehicles.
Recent operating results demonstrate the leverage to the mid-size and large SUV
market, emphasizing the significant operating losses occurring over remaining
portions of GM's product lineup. With transplant volumes showing recent 20%-plus
volume gains, cost advantages and scale benefits at these manufacturers are
producing an ever-widening margin advantage. GM's substantial capacity and
overlapping brands will continue to challenge GM: i.e. the company's ability to
produce aggressive styling and distinct product niches while simultaneously
producing the substantial volumes necessary to absorb its fixed costs. Without
substantial cost structure improvements, GM will be hard-pressed in the near
term to cover its high and inflexible cost structure. Commodity costs,
particularly in steel, are likely to remain elevated through 2006. Although spot
prices may alleviate in the short-term, extended contract terms may push any
meaningful pricing relief out until 2007.
Key new product introductions, namely the GMT-900 series of products, will be
rolled out beginning in late 2005/early 2006. These products will replace the
core products responsible for GM's initial rise to prominence in the SUV market.
The success of these products will be critical to supporting consolidated
operating cash flows through 2006 and into 2007, although the consumer shift
away from this segment of the market will dilute the eventual impact of these
products.
Liquidity remains healthy at GM, with approximately $19.8 billion in cash at GM
at the end of the first quarter, another $18.5 billion at GMAC, and an
additional $16.6 billion in L/T VEBA. GM also retains meaningful asset support
at GMAC through non-automotive-related operations that could be monetized. Fitch
expects that GM is likely to begin spending its VEBA funds, limiting the decline
in S/T cash holdings at the GM level. However, restructuring actions or labor
difficulties could accelerate the decline in liquidity. Over the last several
years, GM has substantially increased its leverage, to $32.5 billion at yearend
2004 from $16.3 billion at yearend 2002, resulting from debt issuance associated
with substantial pension fund contributions. Maturities remain extended, with an
average maturity of approximately 19 years. Maturities in the 2005-2010 period
are approximately $3.5 billion. GM retains access to $8.3 billion in committed
credit lines ($6.5 billion in committed facilities and $1.8 billion in
uncommitted facilities)
Legacy costs remain the primary competitive cost disadvantage, particularly in
the area of health care. Projected health care costs of more than $5.5 billion
in 2005, increasing at a rate of $400-600 million per year, are unsustainable
over the long-term. Roughly two-thirds of this relates to retiree health care
costs, and it remains unlikely that GM will be in a position to restore
structural cost competitiveness or improve its credit profile without addressing
this portion of its fixed cost structure. In Fitch's view, GM will be required
to address this situation with the UAW prior to the contract re-opening in 2007,
raising the potential for labor strife.
GM currently remains adequately funded in its US pension plans, although heavy
levels of benefit outflows, continued low interest rates and marginal asset
returns (as seen to date in 2005) could result in a relatively quick reversion
to an underfunded position if these conditions persist. Of greater concern in
this area is the potential for pension reform that is currently being discussed
in Congress. If enacted as proposed, pension liabilities could be an increasing
concern over the medium term.
Fitch is also concerned about the rapid deterioration of the automotive supplier
base which has been adversely impacted by pricing pressures, high structural and
legacy costs and high commodity prices. Further deterioration and financial
stress could result in supply-chain disruptions, more costly contingency
planning on the part of OEMs, or problematic investment in new model programs.
It will become increasingly difficult to extract the incremental price
concessions that have been the norm historically. There also exists the
possibility that financial support, through changes in payment terms or capital
expenditure funding, will occur to a greater degree.
Europe is expected to show continuing losses despite some recent share gains.
Potentially lower economic growth could result in an extension of persistent
operating losses at GM in that region.
GMAC:
Fitch has taken various actions on GMAC and related subsidiaries and reflects
various initiatives underway within the GMAC family such as structural
protections and potential partial divestitures. The long-term and short-term
ratings of GMAC were lowered in conjunction with the downgrade of GM and reflect
the strong linkages between the two entities. Fitch does not believe that GMAC
meets criteria at this time to warrant a rating above its parent company. Fitch
views GMAC's liquidity as adequate over the near-term to address maturing debt
obligations, although the company will increasingly rely on secured funding
sources such as securitization or whole loan sales to fund the automotive
finance portfolio. As such, Fitch will focus on the quality and quantity of
unencumbered assets relative to unsecured debt to assess whether increased
secured financing may create meaningful structural subordination issues in the
future.
The Rating Watch Evolving on GMAC Bank reflects its position within the newly
created Residential Capital Corp. and GMAC's intention to ring-fence its
residential mortgage business in order to achieve a higher rating. The Rating
Watch will be resolved following the completion of this process.
The long-term, short-term, and support ratings of GMAC Commercial Mortgage Bank
were lowered to 'BB+', 'B' and '3', respectively in conjunction with the
downgrade of GM and GMAC. GMAC Commercial Mortgage Bank's ratings, including the
'B/C' individual rating have been placed on Rating Watch Evolving in order to
assess GMAC's intent to divest a partial stake in this business. The Rating
Watch will be resolved following any potential outside equity investment and its
impact on GMAC Commercial Mortgage Holdings Corp. and GMAC Commercial Mortgage
Bank. Rating Watch Evolving indicates that ratings may be raised, lowered, or
affirmed at current levels.
Ratings lowered with a Negative Rating Outlook by Fitch include the following:
General Motors Corp.
--Senior debt to 'BB+' from 'BBB-';
--Short-term to 'B' from 'F3'.
General Motors of Canada Ltd.
--Senior debt to 'BB+' from 'BBB-';
--Short-term to 'B' from 'F3'.
General Motors Acceptance Corp.
--Senior debt to 'BB+' from 'BBB-';
--Short-term to 'B' from 'F3'.
General Motors Acceptance Corp. of Canada Ltd.
--Senior debt to 'BB+' from 'BBB-';
--Short-term to 'B' from 'F3'.
General Motors Acceptance Corporation, Australia
--Senior debt to 'BB+' from 'BBB-';
--Short-term to 'B' from 'F3'.
GMAC Australia (Finance) Ltd.
--Short-term to 'B' from 'F3'.
GMAC International Finance B.V.
--Senior debt to 'BB+' from 'BBB-';
--Short-term to 'B' from 'F3'.
General Motors Acceptance Corp. (U.K.) Plc.
--Short-term to 'B' from 'F3'.
GMAC Bank GmbH
--Senior debt to 'BB+' from 'BBB-';
--Short-term to 'B' from 'F3'.
General Motors Acceptance Corp. (N.Z.) Ltd.
--Senior debt to 'BB+' from 'BBB-';
--Short-term to 'B' from 'F3'.
Ratings lowered by Fitch and placed on Rating Watch Evolving include the
following:
GMAC Commercial Mortgage Bank
--Senior debt to 'BB+' from 'BBB-';
--Short-term to 'B' from 'F3';
--Support to '3' from '2'.
GMAC Commercial Mortgage Funding Plc.
--Senior debt to 'BB+' from 'BBB-'.
GMAC Commercial Mortgage Japan K.K.
--Senior debt to 'BB+' from 'BBB-';
--Short-term to 'B' from 'F3'.
Ratings placed on Rating Watch Evolving
GMAC Commercial Mortgage Bank Europe Plc.
--Short-term 'F3'.
GMAC Bank
--Senior debt 'BBB-';
--Short-term 'F3';
--Individual 'B/C'.
GMAC Commercial Mortgage Bank
--Individual 'B/C'.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
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(Registrant)
Date: May 24, 2005 By: /s/PETER R. BIBLE
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(Peter R. Bible,
Chief Accounting Officer)