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Announcement:

MOODY'S SAYS EXPANDED GM-DELPHI BUYOUT PROGRAM IS CONSTRUCTIVE BUT SIGNIFICANT CHALLENGES REMAIN

12 Jun 2006
MOODY'S SAYS EXPANDED GM-DELPHI BUYOUT PROGRAM IS CONSTRUCTIVE BUT SIGNIFICANT CHALLENGES REMAIN

New York, June 12, 2006 -- Moody's Investors Service believes that the agreement between General Motors, Delphi and the UAW to expand the buyout program being offered to Delphi employees is a constructive step in helping to resolve the Delphi reorganization without a strike. The expanded buyout program, in combination with the agreement allowing up to 5,000 Delphi employees to flow back to GM, could significantly reduce Delphi's UAW workforce from its current level of about 24,000. This could help facilitate a successful restructuring of Delphi and reduce the likelihood of a UAW work action. Moody's has stated that a prolonged UAW strike at Delphi could severely undermine GM's liquidity and ongoing viability, and is the most significant near-term risk facing the company whose B3 corporate family rating has a negative outlook.

Notwithstanding the positive character of the expanded buyout agreement, Moody's cautioned that GM continues to face considerable near-and intermediate-term risks.

"A number of significant issues remain to be resolved before an agreement can be reached that is mutually acceptable to GM, Delphi and the UAW," said Bruce Clark, senior vice president and lead auto analyst.

Factors that could yet have an important bearing on the outcome of the Delphi reorganization include the number of employees that opt for the buyout program, the amount of any additional contributions that GM might have to make in order to facilitate a Delphi-UAW agreement, and the degree to which Delphi's post-bankruptcy operating structure will reduce the $2 billion annual cost disadvantage GM incurs on its Delphi supply contracts.

Moreover, assuming that the Delphi reorganization can be achieved without a strike, GM will have to contend with a number of other potentially formidable challenges. Concerns of the Pension Benefit Guarantee Corporation (PBGC) will have to be addressed in order to complete the sale of a majority interest in General Motors Acceptance Corporation (GMAC), and to receive the initial $10 billion in sale proceeds. GM will have to sustain the retail shipment level and profitability of the T900 trucks and SUVs despite high fuel prices and shifting consumer preferences. The company will have to stem its loss in North American market share, which has fallen to 23.8% for the five months through May 2006 from 26.3% at year end 2005. At the same time that its operating performance could be pressured by depressed market share and shifting consumer preference, GM will have to fund the sizable payments related to the Delphi restructuring and its own employee buyout program designed to reduce hourly headcount by 30,000. Finally, GM will need to achieve a UAW contract in 2007 that affords material relief from active employee health care costs, and that significantly reduces the burden associated with the current jobs bank program. Moody's expects that GM will have to incur sizable up-front cash payments in return for the critical union concessions that it will need in 2007.

As GM contends with these challenges it will benefit from a liquidity position that stood at $21.6 billion at March 31, and could benefit from the $10 billion in up front proceeds from the GMAC sale.

"The expanded buyout program is a step in the right direction, but GM still needs to get a Delphi deal wrapped up." Clark said. "And even if it gets that deal, the company will still have a long difficult road ahead of it. That is one of the reasons that a strong liquidity position will be so critical."

General Motors Corporation, headquartered in Detroit, Michigan, is the world's largest automotive manufacturer.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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