GM Gets 'Junk' Credit Rating From Fitch

NEW YORK — Fitch on Wednesday assigned General Motors Co. a junk-level credit rating, the first assessment of the automaker's creditworthiness since it left bankruptcy protection last year, saying its pensions are heavily underfunded and the auto market remains uncertain.

Fitch's rating of "BB-" comes as the automaker is preparing for an initial public offering of stock, likely to come in mid-November.

Fitch said GM has come a long way since emerging from bankruptcy protection last year. Its Chapter 11 reorganization gave it more financial flexibility and it is likely to reap the benefits of an improving global auto market.

The company also has a strong cash position, a better cost structure and an increasingly competitive lineup of cars and trucks, Fitch said.

But auto sales remain sluggish for now, Fitch said, while GM's pension obligations remain underfunded by $27 billion as of last December.

In addition, a large portion of the automaker's senior management are new to the auto industry, including CEO Daniel Akerson. The former telecommunications industry executive took the helm of the company on Sept. 1 from Ed Whitacre.

"There may be missteps along the way as the management team essentially learns the industry while on the job," Fitch said in its report.

GM spokeswoman Renee Rashid-Merem declined to comment on the Fitch rating. She said it is common for companies that aren't publicly traded to get ratings from agencies because of debt they carry or the possibility they may issue new debt in the future.

GM disclosed in its initial public offering paperwork filed last month that it is negotiating with banks about a revolving line of credit to provide more liquidity. Rashid-Merem would not say if the company got the credit line.

Assessments from ratings firms such as Fitch are important for companies because they are a factor in determining how expensive it is to issue debt. Fitch considers a rating of "BB-" to be "speculative" with an "elevated vulnerability to default risk."

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AP Auto Writer Tom Krisher contributed to this story from Detroit.

Comments

[James Benjamin Bleeker]

09:26 PM on 10/09/2010

From the article, one has no idea why Fitch gave General Motors a junk rating.

It might be because its U.S. new car market share fell from 22% in 2008 to 19% in 2010 (year-to-date through September).

It might be because its overall 2010 Auto Reliability GPA is fourth from the bottom, with all of the following manufacturers with higher overall GPAs:

Toyota: 3.49
Honda: 3.35
Mitsubishi: 2.60
Nissan: 2.51
Porsche: 2.39
Suzuki: 2.17
Ford: 2.09
Hyundai: 2.07
Kia: 1.94
Daimler: 1.66
BMW: 1.51
VW: 1.46
Jaguar: 1.42.

It might be because of something not available to the public at all.

Or all of the above.

[Patriot86]

03:48 PM on 10/08/2010

The pensions are now assumed by the unions...what a doof us...these bean counters h8te manufacturing and would happily get rid of this neanderthal industry.

[jwoww]

01:57 PM on 10/08/2010

your tax dollar at work

[mackbolan]

05:24 AM on 10/08/2010

how long will it take to get back the rest of the 70 billion...the last time gm stock was for sale it was 1.13....who is going to buy high and sell low...will you rush out to buy 1000 shares at 150.00 to see it plummet in a week to single digits...

[Mac Torquil]

04:34 PM on 10/07/2010

GM. We sell each car at a small loss and make up for it in volume.

[bannorhill]

09:11 AM on 10/07/2010

Junk credit rating for junk cars from a bankrupt company...

Surprise, surprise, surprise.

[Michael Owens]

07:06 AM on 10/07/2010

GM is pumped up the Government.
Junk is Junk.

[nixrox04]

06:47 AM on 10/07/2010

Didn't Fitch rate sub-prime loans AAA?
We gave GM billions which they invested in China. Why didn't the Chinese give them billions?

[blastocyst]

07:20 AM on 10/07/2010

Just wait. China is very interested in GM. In the end, GM is likely to become a Chinese majority-owned subsidiary of China, Inc.

The ratings game is a manipulative scam.

[daultman463]

09:01 AM on 10/07/2010

This is a simple problem to fix.Just give GM another 27 billion and all their troubles will go away.Not!

[nixrox04]

09:08 AM on 10/07/2010

Great points. Let's not forget that we gave 8 Billion taxpayer bucks to Fiat to buy (!?) Chrysler after throwing billions at it when the hedge fund owned it. Incidently, I just had to put tie-rod ends on my hemi R/T with only 31k miles on it.

[mamacat]

06:07 AM on 10/07/2010

The pension problem is GM management's doing. They could have contributed into pension funds, ensuring that the principal would be there for the workers when they needed it. Instead, GM, like most corporations and civic entities (but not all), chose to just issue IOUs, as a way to avoid the cost of funding the pensions. During good economic times, this way of doing things works well enough, but during economic downturns, companies and civic entities who just issued IOUs instead of actually contributing to the pension funds suddenly find themselves unable to make good on the promise to pay pension benefits out of operating funds.

I am retired now, but I worked for a company that tried to shift from making contributions to a pension fund to just promising to pay pension benefits out of operating funds. We had to go on strike until the company gave up its efforts to get control of our pension funds, and thank goodness we did. During this Great Recession our pension benefits have not been reduced, and our pension funds are still fully funded, even though the company, like most, has had economic problems.

If GM's unions are at fault in this mess, it is because they let GM get away with promising to pay pensions out of operating funds instead of contributing quarterly to pension funds.

[Philclock]

05:33 AM on 10/07/2010

"...GM's pension obligations remain underfunded by $27 billion as of last December."

Big Union bail-out by Demo-rats.

What a surprise.

[Patriot86]

03:49 PM on 10/08/2010

The union has assumed pension obligations.

[CarmanK]

02:22 AM on 10/07/2010

Someone must have a lot of money invested in foreign car manufacturing and are using their influence to damage GM. The smoke filled rooms, the cloak and dagger deals and of couse all that foreign money being pumped into the US Chamber of Commerce doesn't have a thing to do with this determination??? Right!!

[Patriot86]

03:50 PM on 10/08/2010

Exactly right.

[Carolab]

01:58 AM on 10/07/2010

The company also has a strong cash position.

_______________________

Yeah, because we gave them money.  What a great investment for us.

[mamacat]

06:20 AM on 10/07/2010

GM has paid back the money which they borrowed from the TARP program, with interest.

[MikeTN]

07:02 AM on 10/07/2010

GM hasn't paid back squat! GM accessed unspent funds from one Government loan program to pay back money from another Government loan. It was nothing but smoke and mirrors. The media didn't report all of the facts and people believed what they were told

[Ohio]

12:50 AM on 10/07/2010

Doh!! ...BUY!

[Ohio]

12:49 AM on 10/07/2010

I wouldn't a GM car with YOUR money. ... er uh, MY money, um, no, yeah Your money? Uh, um, dang.... .... uh, OUR money!

[slithers]

01:21 AM on 10/07/2010

No worries, the government is going to take your money by force and give it to someone who wants to buy a subpar vehicle.

[CarmanK]

02:27 AM on 10/07/2010

Eh, but at least maybe a few fellow americans will be able to pay their mortgage this month, or perhaps put food on the table.

[mamacat]

06:26 AM on 10/07/2010

GM paid back the money they borrowed to stay in business, with interest. Loaning them the money was one of the smartest and most cost effective measures ever made by the U.S. government, despite efforts by Republican lawmakers to increase profits for overseas car makers by sinking GM and Chrysler.

Meanwhile, the GOP gave much, much, much more money away to Big Oil in the form of tax credits and tax reductions than was ever loaned to GM and Chrysler, money that was not repaid and never will be repaid to the taxpayers, even though Big Oil was in no danger whatsoever of going out of business.

[Patriot86]

03:51 PM on 10/08/2010

So buy a Toyota but don't forget extra life insurance.

[HowietheScreamer]

12:28 AM on 10/07/2010

Gee, I wonder how much Goldman Nutsacks paid for that rating?

[blastocyst]

07:19 AM on 10/07/2010

Truly.

[Patriot86]

03:51 PM on 10/08/2010

Exactly.