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) August 2, 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, Detroit, Michigan 48265-3000
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(Address of Principal Executive Offices) (Zip Code)
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 August 2, 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 BB (high), Trends Remain Negative
Date of Release: August 2, 2005
Issuer Debt Rated Rating Rating Trend
Action
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General Motors Corporation Commercial Downgraded R-3 Neg
Paper (high)
General Motors of Canada Commercial Downgraded R-3 Neg
Limited Paper (high)
General Motors Corporation Long-Term Debt Downgraded BB Neg
(high)
General Motors Corporation Convertible Downgraded BB Neg
Debentures (high)y
General Motors Corporation Ind. Dev. Downgraded BB Neg.
Empower. Zone (high)
Rev. Bds., S2004
(Issued by NYC Ind.
Dev. Agency,
Guar. By GMC)
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General Motors of Canada Long-Term Debt Downgraded BB Neg
Limited (high)
Note: y - this security has certain unique convenants that give it equity-like
characteristics.
Dominion Bond Rating Service ("DBRS") has today downgraded the ratings of
General Motors Corporation ("GM" or the "Company") and General Motors of Canada
Limited as indicated above. All trends remain Negative. The rating action
principally reflects the much worse than expected performance at the Company's
North American operations, an eroding position in its most important North
American market, and the lack of solid progress to date in controlling rising
health care costs. The Company's much weakened credit profile is no longer
compatible with an investment-grade rating. Moreover, the full benefits of the
Company's most significant product program, the T-900 program, are at least two
years away and the ability of GM to restore its credit profile is uncertain
because of the intensifying competitive environment in North America. With this
rating action, the companies are removed from "Under Review with Negative
Implications" where they were placed on July 22, 2005.
The Company has not been able to satisfactorily address the structural factors
impacting its profitability the past few years. (1) Overcapacity is a problem at
GM. Even though the Company has reduced capacity, the problem has actually
worsened due to the market share loss caused by the success of Asian producers.
(2) The use of high sales incentives has led to a permanent erosion of the
Company's profit margin and brand value. In addition, the Company has to keep
raising sales incentives to maintain the effectiveness. (3) The burden of high
legacy costs (pension and health care) has put GM in an uncompetitive position
against imports and even transplants. The health care cost inflation has gone up
sharply recently despite GM's efforts to control the increase, and the rising
trend is expected to continue. There is a lack of success to date by GM to
secure meaningful concessions from the UAW to reduce the cost burden.
DBRS notes there are other recent negative market developments adding to the
challenge of GM's recovery efforts: (1) Higher gasoline prices, changing
consumer preference, and the late product cycle issue have led to a sharp
decline in the more profitable mid-sized and large sports utility vehicle (SUV)
sales. Large SUV and pick-up trucks are the most profitable products for GM. A
shift in consumer demand would have a significant impact on the Company's
profitability. (2) The deteriorating financial health of the parts supplier base
and limited productivity improvement due to shrinking production volume have
made it more difficult for GM to generate large material cost savings to offset
the pricing pressure. Rising commodity prices (steel and resin) further add to
the challenge.
The Company has identified and worked towards moderating the impact of these
factors. The launch of the "employee discount" promotion program in June 2005
has been very effective in reversing the market share decline and reducing
inventory to an acceptable level, albeit at the expense of slightly higher sales
incentives. However, its continuing success is uncertain because key competitors
are countering with similar programs in July. Moreover, DBRS believes that new
contract negotiations with the CAW (current contract expires on September 2005)
may lead to higher costs in the Canadian operations. In view of the much worse
than expected deterioration in GM's profitability and the lack of solid progress
to date in addressing these structural factors, DBRS concludes that GM's credit
profile is no longer compatible with an investment-grade rating. The Negative
trend recognizes the substantial headwinds still facing GM, which it needs to
overcome to stabilize its profitability.
Nevertheless, DBRS notes that GM continues to be supported by a strong liquidity
position. General Motors Acceptance Corporation, its financial services
operations, remains highly profitable, providing stable earnings to the group.
GM is about to introduce new products in its most profitable segments in the
next couple of years, and the success of the "employee discount" program has
removed a large inventory overhang positioning the Company for a successful
launch.
DBRS Downgrades GMAC & Related Subsidiaries
Downgrades to BBB (low), R-2 (low)
Date of Release: August 2, 2005
Issuer Debt Rated Rating Rating Trend
Action
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General Motors Commercial Paper Downgraded R-2 (low) Neg
Acceptance
Corporation
General Motors Commercial Paper Downgraded R-2 (low) Neg
Acceptance
Corporation (N.Z.)
Limited
General Motors Commercial Paper Downgraded R-2 (low) Neg
Acceptance
Corporation (U.K.)
plc
General Motors Commercial Paper Downgraded R-2 (low) Neg
Acceptance (guar. by GMAC)
Corporation of
Canada, Limited
General Motors Commercial Paper Downgraded R-2 (low) Neg
Acceptance
Corporation Australia
GMAC Bank GmbH Commercial Paper Downgraded R-2 (low) Neg
GMAC Commercial Commercial Paper Downgraded R-2 (low) Neg
Mortgage Funding
Asia K.K.
GMAC Commercial Commercial Paper Downgraded R-2 (low) Neg
Mortgage Funding, plc
GMAC International Commercial Paper Downgraded R-2 (low) Neg
Finance B.V.
GMAC, Australia Commercial Paper R-2 (low)
(Finance) Limited Downgraded Neg
General Motors Long-Term Debt Downgraded BBB (low) Neg
Acceptance
Corporation
General Motors Medium & Downgraded BBB (low) Neg
Acceptance Long-Term Debt
Corporation (N.Z.)
Limited
General Motors Notes & Downgraded BBB (low) Neg
Acceptance Debentures (guar.
Corporation of by GMAC)
Canada, Limited
General Motors Medium & Downgraded BBB (low) Neg
Acceptance Long-Term Debt
Corporation,
Australia
GMAC Bank GmbH Medium & Downgraded BBB (low) Neg
Long-Term Debt
GMAC Commercial Medium & Downgraded BBB (low) Neg
Mortgage Funding Long-Term Debt
Asia, K.K.
GMAC Commercial Long-Term Debt Downgraded BBB (low) Neg
Mortgage Funding plc
GMAC International Medium & Downgraded BBB (low) Neg
Finance B.V. Long-Term Debt
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Dominion Bond Rating Service ("DBRS") has today downgraded the ratings of
General Motors Acceptance Corporation ("GMAC") and its subsidiaries to BBB (low)
and R-2 (low) for the long-term debt and short-term debt, respectively. The
rating trend remains Negative. The ratings are removed from "Under Review with
Negative Implications", where they were placed on July 22, 2005.
This rating action is entirely due to DBRS's concurrent downgrade of the ratings
of General Motors Corporation ("GM").
The rating action principally reflects the much worse than expected performance
at GM's North American operations, an eroding position in its most important
North American market, and the lack of solid progress to date to control rising
health care costs. GM's much weakened credit profile is no longer compatible
with an investment-grade rating. Moreover, the full benefits of GM's most
significant product program, the T-900 program, are at least two years away and
the ability of GM to restore its credit profile is uncertain because of the
intensifying competitive environment in North America. See separate DBRS press
release on GM for more details.
GMAC continues to perform well, but earnings declined modestly as weaker
Financing operations were only partially offset by stronger Mortgage operations
and Insurance operations. Lower Financing results reflect the impact of higher
interest rates and rising borrowing costs. GMAC continues to focus on
diversifying its funding sources given its reduced access to unsecured debt
markets at a reasonable cost. The recently announced US$55 billion committed
whole loan sale agreement (over five years) is a further step towards
management's "originate and sell" business model. Structural subordination
should not be an issue, so long as the future proceeds are allocated toward the
reduction of unsecured debt.
Asset quality, balance sheet leverage, and liquidity remain respectable. GMAC
has more than sufficient maturing receivables to meet maturing debt obligations.
Overall, GMAC is a source of earnings stability and dividends for GM.
# # #
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: August 4, 2005 By: /s/PETER R. BIBLE
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(Peter R. Bible,
Chief Accounting Officer)