UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 1, 2005
GENERAL MOTORS CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE 1-143 38-0572515
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(State or other jurisdiction of (Commission (I.R.S. Employer
Incorporation or Organization) File Number) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 8.01. OTHER EVENTS
On November 1, 2005, Moody's Investors Services, Inc. (Moody's) lowered their
ratings of General Motors Corporation (GM). GM's wholly-owned subsidiary General
Motors Acceptance Corporation (GMAC), and GMAC's wholly-owned subsidiary
Residential Capital Corporation (ResCap) remain under review. Their press
releases follows.
MOODY'S DOWNGRADES GM'S RATING TO B1 WITH NEGATIVE OUTLOOK; GMAC'S RATING AT
Ba1 REMAINS UNDER REVIEW WITH DIRECTION UNCERTAIN
Approximately $30 Billion of Debt Affected
New York, November 01, 2005 -- Moody's Investors Service lowered the long-term
rating of General Motors Corporation (GM) to B1 from Ba2. The outlook is
negative. The Ba1 rating of General Motors Acceptance Corporation (GMAC) and the
Baa3 rating of Residential Capital Corporation remain under review with
direction uncertain. The GM downgrade reflects greater uncertainty as to GM's
ability to implement a comprehensive restructuring program, stem eroding market
share, rebuild North American profitability, and achieve positive free cash flow
quickly enough to meet the financial metrics previously defined by Moody's for
maintenance of its Ba2 rating. Moreover, factors that could create additional
uncertainty include: risk of supply disruptions if actions by Delphi to reduce
its costs lead to UAW job actions; potential implications of the recently
announced SEC investigations; and any actions that GM might need to take to
address the interests of key shareholders.
The ongoing erosion of GM's competitive position and market share is evident in
the company's significant third quarter operating loss, which contributed to
$6.6 billion of cash consumption for the nine months ended September 30th. The
company anticipates that the scheduled launch of its new T900 trucks and SUVs
will provide opportunity for improved market share and financial performance.
However, in an environment where consumer preferences are shifting toward more
fuel efficient vehicles, the market acceptance of this new line of vehicles is
less certain, and may not enable the company to fully recover the considerable
investment made to develop, produce and launch the project.
At the same time, GM continues to face a significant competitive cost
disadvantage because of a burdensome North American wage and benefit structure
within its own operations and those of its major supplier, Delphi Corporation.
While the company has recently reached a tentative agreement with the UAW to
significantly reduce its retiree healthcare costs, the cash flow benefits of
this proposed plan are unlikely to be realized before 2008. Moreover, further
cost reduction initiatives are likely to be needed in order for GM to achieve a
competitive cost structure in North America. Further restructuring actions would
likely require a large use of cash in order to fund employee separation costs.
Liquidity could be further pressured by continued operating cash deficits
together with any cash payments related to the Delphi reorganization.
A potential offset to these liquidity requirements is GM's plan to monetize a
portion of its GMAC investment, and the B1 rating anticipates that GM will be
successful in selling a majority stake in GMAC. Dividends received from GMAC
have been a major source of cash to GM and have provided a lift to its credit
metrics. The potential reduction in dividends from GMAC due to a partial sale
would contribute to a longer-term erosion of the company financial profile.
Despite this erosion, the sale plays a critical role in GM's financial strategy.
The transaction will boost liquidity available to fund GM's operating and
restructuring requirements, and will enhance GMAC's value by improving its
capital structure and funding cost. Consequently, Moody's believes that a
failure to complete the sale would require further adjustment to the company's
strategy and could result in additional downward pressure on the rating.
The negative outlook reflects Moody's view that GM continues to face a number of
near-term challenges that could further pressure the rating. GM remains
vulnerable to any work actions or strikes that might occur at Delphi as a result
of the supplier's attempt to reduce labor costs. Any interruption of supply
arrangements with Delphi would be highly disruptive for GM. Beyond this, failure
to achieve material incremental labor cost reductions over the intermediate term
could require the company to pursue other strategic initiatives that could have
further negative rating implications. The SEC inquiry into certain GM accounting
practices could distract management's attention from implementing needed
restructuring actions. Moody's further notes that SEC investigations have, in a
number of circumstances, resulted in various companies electing to delay the
filing of their financial statements, resulting in their inability to comply
with lending agreement covenant requirements. While GM has not indicated any
delay in its financial reporting related to the SEC investigation, such an event
would be viewed negatively from a rating perspective. Moreover, it would be
viewed negatively if developments relating to the investigation interfered with
the company's ability to sell a majority interest in GMAC.
Moreover, depending on developments in the investigation, the company's ability
to file financial statements in a timely manner and thereby remain in compliance
with covenant provisions of various lending agreements could be jeopardized.
Developments in the inquiry could also interfere with the company's near-term
ability to sell a majority interest in GMAC.
The company's SGL-1 Speculative Grade Liquidity Rating considers that as GM
contends with market and competitive challenges, it will benefit from $19
billion of cash and $16 billion in long-term Voluntary Employees' Beneficiary
Association (VEBA) balances. These resources, along with proceeds from the
potential sale of a majority stake in GMAC, should provide critical liquidity
through 2007. In order to maintain the parent company's B1 rating, GM's
automotive operations, excluding any earnings or dividend contribution from
GMAC, will have to remain on track for generating interest coverage exceeding
1.5 times, EBIT margin of over 2%, and positive free cash flow by 2007. The
following areas are the principal drivers of GM's ability to implement longer
term recovery:
o Near term finalization of the proposed UAW agreement to reduce health care
costs, and laying the groundwork for productive negotiations with the UAW
regarding the 2007 contract negotiation;
o Achieving component cost reductions including a supply agreement with Delphi
that materially reduces the current $2 billion cost penalty;
o Avoiding operational disruptions stemming from Delphi's restructuring, and
minimizing obligations associated with its guarantee of certain Delphi
pension and health care benefits;
o Rebuilding market share including establishing market acceptance and
reasonable pricing for the T900 series;
o Completing the sale of a majority interest in GMAC;
o Maintaining strong liquidity;
o Resolving the SEC investigation in a manner that does not delay release of or
necessitate material adjustments to its financial statements.
Consistent progress in these areas could stabilize GM's rating outlook and lay
the ground work for a credit recovery. Conversely, set backs could result in
further rating downgrades.
GMAC's Ba1 long-term rating, which was placed under review with direction
uncertain on October 17, 2005, is not affected by the downgrade in GM's ratings.
GMAC's Not-Prime short term rating, currently under review for possible upgrade,
is also not affected by the GM rating action.
Moody's believes GM to be aggressively pursuing its previously announced
intention to sell a controlling stake in GMAC. The outcome of a successful
transaction would likely lead to a separation of GMAC's ratings from those of
GM, assuming the strategic partner exhibits sufficient financial and managerial
strength and strategic alignment with GMAC's auto and mortgage finance
franchises.
Moody's believes GMAC's stand-alone credit profile would currently warrant a
low-Baa long-term rating, based upon GMAC's franchise strength and reasonable
credit metrics, balanced by its sizeable direct and indirect exposure to GM.
Moody's has noted that should GMAC's new strategic partner exhibit both an
ability and willingness to support the enterprise, there could ultimately be
positive implications for GMAC's ratings beyond its current stand-alone low-Baa
credit profile.
Moody's notes that there is uncertainty regarding the outcome of GM's plans for
the sale of a controlling stake in GMAC. A transaction this large and complex
necessarily entails execution risk. In maintaining the current Ba1 long-term
rating, on review with direction uncertain, Moody's is assuming that a
transaction is likely to be completed. If Moody's believes that a successful
outcome is less likely as events develop, Moody's could lower GMAC's ratings in
the interim. If GM is ultimately unable to consummate its plans in such a way as
to achieve ratings separation for GMAC, Moody's would likely re-link GMAC's
long-term rating with the long-term rating of GM. The number of notches of
rating differential between the GMAC ratings and the GM ratings would be
evaluated at that time. Moody's said that it has historically maintained a
one-notch differential between the firms' long-term ratings. This has been based
upon Moody's belief that GMAC's unsecured creditors benefit from (1) to a
limited degree, a lower likelihood of default between the two firms, and (2) to
a much greater degree, reduced severity of loss upon default, relative to GM
unsecured creditors.
General Motors Corporation, headquartered in Detroit, Michigan, is the world's
largest producer of cars and light trucks. GMAC, a wholly-owned subsidiary of
GM, provides retail and wholesale financing in support of GM's automotive
operations and is one of the world's largest non-bank financial institutions.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
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(Registrant)
Date: November 2, 2005 By: /s/PETER R. BIBLE
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(Peter R. Bible,
Chief Accounting Officer)