New York, 05-30-95 -- Moody's raised the credit ratings of General Motors Corporation (GM) and General Motors Acceptance Corporation (GMAC) and certain related affiliates. The rating upgrades conclude a review which was initiated on March 17, 1995. In this action, GMAC's commercial paper rating has been raised as well. MOODY'S RAISES CREDIT RATINGS OF GENERAL MOTORS CORPORATION, GENERAL MOTORS ACCEPTANCE CORPORATION, AND RELATED AFFILIATES (Senior to A3); GENERAL MOTORS ACCEPTANCE CORPORATION COMMERCIAL PAPER TO P-1.
GM's upgrade is based on improved debt protection measures resulting from strengthening operations in the critical North American market and the continuing positive contribution of its international operations. Following several years of losses, GM has returned to profitability in its North American Operations (NAO) due, in part, to management's focus on reducing the cost difference between themselves and competition, revitalize marketing and gradually modernize to a more streamlined product offering. While GM also has benefited from strengthened market fundamentals, Moody's believes that GM has improved its ability to better protect its financial flexibility in the next market downturn. GM's operating efficiencies in North America continue to lag those of major competitors. Moody's expects, however, that GM will continue to improve its competitive position over the intermediate term.
The upgrade in GMAC's long-term rating reflects the continued earnings power, consistent asset quality, conservative lease residual value risk management and continued improvement of its parent company, General Motors. Tempering the company's financial strengths are continued and aggressive competition in the auto finance market which has pressured GMAC's margins and reduced its financing market share.
The increase in the short-term rating to Prime-1 from Prime-2 reflects the high quality and inherent liquidity in the company's assets relative to its short-term obligations and GMAC's ability to rapidly access the asset-backed security (ABS) markets under adverse circumstances.
The ratings upgraded are:
General Motors Corporation -- bonds, notes, debentures, eurobonds, medium term notes, and pass-through certificates to A3 from Baa1; industrial revenue bonds to A3/VMIG2 from Baa1/VMIG2; shelf registration for senior unsecured debt to (P)A3 from (P)Baa1; preferred stock to "baa1" from "baa3"; shelf registration for preferred stock to (P)"baa1" from (P)"baa3"; counterparty rating to A3 from Baa3.
General Motors Acceptance Corporation -- Commercial Paper to P-1 from P-2
General Motors Acceptance Corporation -- bonds, notes, debentures, eurobonds, medium term notes, and euro medium term notes to A3 from Baa1; shelf registration for senior unsecured debt to (P)A3 from (P)Baa1; counterparty rating to A3 from Baa1.
Hughes Electronics Corporation -- equipment trust and pass-through certificates to A3 from Baa1.
GMAC International Finance B.V. -- medium term notes to A3 from Baa1,
GMAC Overseas Finance NV -- to A3 from Baa1,
GMAC Australia (Finance) Ltd. -- euronotes and medium term notes to A3 from Baa1,
GMAC Australia (Finance) Ltd. -- to P-1 from P-2,
General Motors Acceptance Corp. (N.Z.) Limited -- to P-1 from P-2,
General Motors Acceptance Corp. (U.K.) PLC -- to P-1 from P-2,
General Motors Acceptance Corp. (U.K.) plc -- eurobonds to A3 from Baa1.
Vauxhall Motors (Finance) plc -- eurobonds to A3 from Baa1,
General Motors Acceptance Corp. of Canada, Ltd. -- to P-1 from P-2
General Motors Acceptance Corp. of Canada, Ltd. -- bonds, eurobonds, euronotes and medium term notes to A3 from Baa1,
The P-2 ratings for commercial paper of Hughes as well as the ratings for Electronic Data Systems Corporation are not affected by this action.
GM has made meaningful progress in improving its cost structure in North America through reductions in production capacity to better match actual demand and increases in productivity measurements at many of its plants. GM remains challenged to gain greater flexibility in its production processes to enable more rapid adjustment to changing market conditions. Constraints imposed by the current labor contracts, in particular, will limit the pace of change. Yet, Moody's expects that GM will continue to reduce its fixed cost structure and narrow the gap in production efficiency compared to its competitors. Recent new product launches also are providing some indication that GM is restoring its capabilities as a marketing organization after numerous years of faltering performance. Sustained improvements in product offerings and cost structure will render GM less vulnerable to slow-downs in industry demand in North America.
GM's International Operations (IO) have provided a critical hedge to weak North American operating performance in recent years. GM's European business has remained profitable despite recent weakness in industry demand, reflecting GM's competitive market position and cost structure in the region. GM's Latin American operations recently have enjoyed exceptional profitability; while Moody's expects this market to be characterized by greater volatility, the company's flexible cost structure in this region reduces GM's financial exposure during periods of weak demand. GM's operations in Asia/Pacific, while less sizable today, position GM to participate in the anticipated industry growth in the region. The footprint of GM's production and marketing operations globally provide the company with a significant competitive advantage by providing a match of production costs with its markets. GM's extensive international operations lessen its exposure to currency movements relative to many competitors while also providing extensive global coverage.
Improved operating performance has enabled GM to begin restoring its capital position. Increased cash flow has provided for additional funding of the pension plan while supporting greater capital spending on product programs, production facilities and regional expension. Following the contribution of the bulk of GM's remaining Class E shares to its pension plan, the unfunded pension obligation has been a significantly reduced threat to GM's financial position. While it has increased dividend levels and stock repurchase activity, GM's management also has established important liquidity objectives which are expected to provide GM with significantly improved resources through the next industry downturn. Further, increased levels of spending will be necessary to sustain new product development and fund regional expension. Moody's expects that GM will pursue financial policies which will continue to enhance its financial flexibility.
GMAC's upgrade to Prime-1 incorporates both GMAC's role in the total GM enterprise as well as the special characteristics of GMAC's short-term risk. GMAC's short-term risk benefits from the increased financial flexibility and liquidity, beyond traditional alternative liquidity sources, offered by the the composition and quality of GMAC's balance sheet over the short and intermediate term and the increasing ability to access to the asset-backed securities (ABS) market According to Moody's, GMAC has demonstrated the ability to rapidly access that market in significant size, in a prudent and systematic way, under adverse financial conditions. Underlying the upgrade to Prime-1 is the rating agency's opinion that GMAC will pursue a long-term strategy that ensures and maintains continued access to the ABS market.
An additional, important consideration in the upgrade to Prime-1 is the composition and mix of GMAC's balance sheet. With this balance sheet mix, it is Moody's opinion that GMAC will maintain a high degree of flexibility and scale of assets to securitize in the event of a liquidity shortfall. The rating agency expects that GMAC will continue to maintain a prudent balance of asset securitization and unsecured funding, thereby providing a "reserve" for future liquidity requirements, and protecting the interest of unsecured creditors. We conclude that these factors constitute a basis for differentiating between GMAC's and GM's short-term rating.
General Motors Corporation, headquartered in Detroit, Michigan, is the world's largest auto manufacturer. GMAC, a wholly owned captive finance subsidiary of GM, provides financing to GM customers and dealers. Hughes Electronics is a GM subsidiary with major activities in automotive electronics, defense electronics, and commercial communications satellites.
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