S&P downgrades GM

Standard & Poor's said it lowered its corporate credit rating on General Motors Corp. to B from BB-, its short-term debt rating to B-3 from B-2 and removed the ratings from CreditWatch, where they were placed on Oct. 3 with negative implications.

The BB/B-1 ratings on General Motors Acceptance Corp. and the BBB-/A-3 ratings on Residential Capital Corp. remain on CreditWatch with developing implications, reflecting the potential that GM could sell a controlling interest in GMAC to a highly rated financial institution.

The outlook is negative.

The downgrade reflects S&P's increased skepticism about GM's ability to turn around the performance of its North American automotive operations. If recent trends persist, GM could ultimately need to restructure its obligations, despite its currently substantial liquidity and management's statements that it has no intention of filing for bankruptcy.

One recent positive development for GM has been the negotiation of an agreement with the United Auto Workers providing for reduced health care costs. Yet, this agreement will only partly address the competitive disadvantage posed by GM's health care burden and cash savings would only be realized beginning in 2008, the agency said.

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