Moody's puts GM, GMAC on review

Moody's Investors Service said it has put General Motors Corp.'s Baa3 long-term rating and Prime-3 short-term rating and General Motors Acceptance Corp.'s Baa2 long-term rating and Prime-2 short-term rating under review for possible downgrade.

Moody's said its action was prompted by its concern that escalating incentives, shifting consumer preference to more fuel efficient vehicles, and long-term pressure on GM's U.S. market share will make it increasingly difficult for the company to deliver credit metrics that are consistent with the Baa3 rating by year-end 2007.

The metrics include: EBITA margins that approximate 4%; fixed charge coverage in the 3.5 to 4.0 times range; and free cash flow to total lease and pension adjusted debt of more than 15%.

In particular, GM's performance could be limited by escalating competitive and cost pressures that could cause GM's rate of automotive cash burn for 2005 to materially exceed the $2 billion level upon which the Baa3 rating was based, even if the company achieves relatively sizable reductions in health care costs; the difficulty of maintaining recent market share gains as competitors respond to the "You Pay What We Pay" promotion; continued market share erosion that might prompt material restructuring charges; the introduction of T900 truck/SUV models in early 2006 into a market which has seen consumer preference shift toward smaller, more fuel efficient vehicles; and the strategic alternatives that might be pursued to ensure the liquidity and funding competitiveness of GMAC, which might reduce access to dividends from the finance operations.

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