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 26, 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 26, 2005, Dominion Bond Rating Service (DBRS) downgraded General Motors
Corporation and General Motors of Canada Limited, and General Motors Acceptance
Corporation. Their press releases follow.
General Motors Corporation & General Motors of Canada Limited
Downgrades to BBB (low) and R-2 (low), Trends Remain Negative
Date of Release: May 26, 2005
Issuer Debt Rated Rating Rating Trend
Action
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General Motors Corporation Commercial Downgraded R-2 Neg
Paper (low)
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General Motors of Canada Commercial Downgraded R-2 Neg
Limited Paper (low)
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General Motors Corporation Long-Term Debt Downgraded BBB Neg
(low)
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General Motors Corporation Convertible Downgraded BBB Neg
Debentures (low)y
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General Motors Corporation Ind. Dev. Downgraded BBB Neg.
Empower. Zone (low)
Rev. Bds., S2004
(Issued by NYC Ind.
Dev. Agency,
Guar. By GMC)
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General Motors of Canada Long-Term Debt Downgraded BBB Neg
Limited (low)
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Dominion Bond Rating Service ("DBRS") has today downgraded the ratings on
General Motors Corporation ("GM" or the "Company") and General Motors of Canada
Limited as indicated above. The trends remain Negative.
Since the last rating actions on March 16, 2005, the Company's North American
operating performance continued to be weak with declining shipment and market
share. The Company has withdrawn its lowered earnings (excluding special items)
guidance of US$1 to US$2 per share for 2005 as well as its operating cash flow
target of a deficit of US$2 billion in 2005, before the Fiat S.p.A. ("Fiat")
settlement. Although sales of new models are gathering momentum, they are not
sufficient to stabilize GM's market share loss. The continuing sharp decline in
the sales of large sport-utility vehicles (SUVs) and the recent slowing sales of
pick-up trucks, GM's most profitable segments, are worrying developments, and
GM's profitability in 2005 could be well below DBRS's expectation at the time of
the most recent rating action. In addition, the downgrade of the Commercial
Paper rating from R-2 (high) to R-2 (low) reflects GM's much reduced access to
the unsecured markets. Recent negative rating actions have driven up borrowing
costs significantly for GM making borrowing in the unsecured market uneconomic,
although GM still has good access to the secured markets.
Structural factors contributing to the deterioration at the automotive
operations have remained and are as follows:
(1) The Company has not been able to stabilize market share loss despite a
number of new model introductions.
(2) Ongoing use of high sales incentives to support sales in response to
competitive pressure erodes profit margins. Although the Company has
exercised restraint recently, GM remains the most aggressive in the use
of incentives.
(3) High gasoline prices have contributed to a shift to smaller SUVs from the
more profitable large SUVs, which further depresses profit. The aging of
the product line (the last year of the large SUV product cycle) adds to
the challenge.
(4) The large legacy costs (pension and post-retirement benefits) continue to
depress earnings at GM. The Company has limited success in controlling
health care inflation, with expenses expected to increase by US$1 billion
on a year-over-year basis. The recent sharp rise in commodity prices (steel
and resin) further increases the cost base.
(5) GM still has too much capacity in its North American operations despite
ongoing downsizing efforts. Slowing sales and higher than normal dealer
inventory is likely to weigh on production and worsen the already low
capacity utilization
Nevertheless, the current ratings are supported by the following factors:
(1) GM is on the verge of launching new products based on the new T900 platform.
The brand new large SUVs (in 2006) and pick-up trucks (in 2007) are GM's
largest and most profitable products. The success of these vehicles may be
able to mitigate the deteriorating performance at its North American
operations.
(2) GM continues to have strong liquidity (gross cash including short-term VEBA
at US$19.8 billion at the end of March 2005) even though based on DBRS's
estimates the near-term deficit in free cash flow and the Fiat settlement
would lower the cash position. A modest debt maturity schedule (average
debt maturity of 19 years) adds to financial flexibility. The North America
pension plans are fully funded and have no need for further contributions.
(3) GM has a highly profitable finance subsidiary, General Motors Acceptance
Corporation ("GMAC"). GMAC is expected to continue to keep GM profitable
on a consolidated basis despite a rising interest rates environment as well
as higher borrowing costs, and is a source of liquidity through dividend
payments.
Hence, DBRS believes that GM is still investment grade.
The Negative trends reflect that GM continues to face significant challenges in
the near to medium term. Competition is expected to remain intense, and the
continuing favourable demand for automobiles in North America is uncertain. More
importantly, the execution of the T900 platform launch will be critical. Any
problems and delays in introducing the new products could be critical to the
turnaround of GM's North American operations. Furthermore, rising gasoline
prices and increasing competition in the large SUV and pick-up segments by the
Asian manufacturer could limit the success of the new products.
Note:
y - This security has certain unique covenants that give it equity-like
characteristics
GMAC & Related Subsidiaries Downgrades to BBB, R-2 (middle), Trend Negative
Date of Release: May 26, 2005
Issuer Debt Rated Rating Rating Trend
Action
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General Motors Commercial Paper Downgraded R-2 (middle) Neg
Acceptance
Corporation
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General Motors Commercial Paper Downgraded R-2 (middle)
Acceptance Neg
Corporation (N.Z.)
Limited
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General Motors Commercial Paper Downgraded R-2 (middle) Neg
Acceptance
Corporation (U.K.)
plc
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General Motors Commercial Paper Downgraded R-2 (middle) Neg
Acceptance (guar. by GMAC)
Corporation of
Canada, Limited
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General Motors Commercial Paper Downgraded R-2 (middle) Neg
Acceptance
Corporation Australia
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GMAC Bank GmbH Commercial Paper Downgraded R-2 (middle) Neg
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GMAC Commercial Commercial Paper Downgraded R-2 (middle) Neg
Mortgage Bank
Europe, plc
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GMAC Commercial Commercial Paper Downgraded R-2 (middle) Neg
Mortgage Funding
Asia K.K.
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GMAC Commercial Commercial Paper Downgraded R-2 (middle) Neg
Mortgage Funding, plc
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GMAC International Commercial Paper Downgraded R-2 (middle) Neg
Finance B.V.
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GMAC, Australia Commercial Paper Downgraded R-2 (middle) Neg
(Finance) Limited
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General Motors Long-Term Debt Downgraded BBB Neg
Acceptance
Corporation
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General Motors Medium & Downgraded BBB Neg
Acceptance Long-Term Debt
Corporation (N.Z.)
Limited
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General Motors Notes & Downgraded BBB Neg
Acceptance Debentures (guar.
Corporation of by GMAC)
Canada, Limited
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General Motors Medium & Downgraded BBB Neg
Acceptance Long-Term Debt
Corporation,
Australia
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GMAC Bank GmbH Medium & Downgraded BBB Neg
Long-Term Debt
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GMAC Commercial Medium & Downgraded BBB Neg
Mortgage funding Long-Term Debt
Asia, K.K.
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GMAC Commercial Long-Term Debt Downgraded BBB Neg
Mortgage Funding plc
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GMAC International Medium & Downgraded BBB Neg
Finance B.V. Long-Term Debt
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Dominion Bond Rating Service ("DBRS") has today downgraded the long-term debt
ratings of General Motors Acceptance Corporation ("GMAC") and its subsidiaries
to BBB from BBB (high), and the Commercial Paper ratings have been downgraded to
R-2 (middle) from R-1 (low). The trends remain Negative.
This rating action is entirely due to DBRS's downgrade of the long-term debt
rating on General Motors Corporation ("GM"), to BBB (low) from BBB and the
Commercial Paper rating to R-2 (low) from R-2 (high). The rating trend for GM
also remains Negative. The rating action on GM reflects the deterioration in its
automotive operating performance, and the significant structural challenges
facing GM going forward. (See the separate concurrent DBRS press release for
General Motors Corporation.)
DBRS policies allow for a captive finance company to be rated modestly higher
than its parent. As such, DBRS currently rates debt of GMAC one notch higher
than that of GM, reflecting numerous considerations based on the following key
points: (1) The value and first claim ability of the captive assets; (2) The
relationship between GMAC and its parent GM; (3) The stand-alone strength of
GMAC; and (4) Where the ratings are in the rating spectrum.
GMAC has continued to demonstrate favourable earnings performance through 2004
and into 2005. The earnings contribution has been broad-based with solid
performance from the auto finance operations, mortgage operations, and sharply
higher insurance profits. DBRS anticipates moderately reduced performance for
2005, but at continued respectable levels.
Overall, liquidity, asset quality, and capital considerations remain
respectable. GMAC has more than sufficient maturing receivables to meet maturing
debt obligations. Access to other diversified funding sources, including whole
loan sales, provide alternatives. In addition, management is considering various
options that could monetize some of the value in certain operating units.
However, GMAC is challenged by rising funding costs, reduced access to unsecured
debt markets at a reasonable cost, and rising interest rates in general. The
impact of increased reliance on secured financing, whole loan sales, and a
declining receivable portfolio helps provide an offset, but may have negative
implications. Firstly, the reduction in unencumbered assets may reduce asset
coverage available to holders of unsecured debt, unless there is a commensurate
decline in unsecured debt. Also, with a downsized receivable portfolio, fixed
costs of operating the business are spread over a smaller asset base, thereby
affecting profitability.
First and foremost, however, GMAC is impacted by the credit strength of its
parent.
# # #
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 31, 2005 By: /s/PETER R. BIBLE
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(Peter R. Bible,
Chief Accounting Officer)