Moody's may cut GM, GMAC

Moody's Investors Service said it placed under review for possible downgrade the Baa2 long-term and prime-2 short-term ratings of General Motors Corp. and the Baa1 long-term rating of General Motors Acceptance Corp.

Moody's also affirmed the prime-2 short-term rating of GMAC.

Moody's said the rating review is prompted by GM's announcement that its automotive earnings and cash generation will be much lower than previous guidance had suggested.

GM's 2005 earnings outlook (consolidated net income before extraordinary items) has fallen to the range of $0.6 billion - $1.1 billion from the earlier expectation of $2.2 billion to $2.8 billion.

Moreover, GM is anticipating that its automotive operations will consume nearly $2 billion in cash (prior to the receipt of a $2 billion dividend from GMAC) as compared with prior expectations for $2 billion in automotive cash generation. This represents a significant $4 billion negative variance.

Moody's said it anticipates that GM may need to undertake material restructuring initiatives in order to reduce the capacity and lower the breakeven level of its North American operations.

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