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Visitor support makes this site possible. Please shop often via Auto on Info. Thank you. Men's Fine Tie Clips and Ties Forzieri tie clips Men's Ties by Versace Men's Ties by Valentino To view more men's ties, icons, and search phrases, click here. Men's Watches Men's Watches by Gucci Men's Watches by Movado Men's Watches by Cartier To view more men's watches, icons, and search phrases, click here. Fine Women's Watches Women's Watches by Cartier Women's Watches by Movado Women's Watches by Gucci To view more fine women's watches, icons, and search phrases, click here. Fine Women's Perfumes L'air du Temps by Nina Ricci for women Must II de Cartier by Cartier for women Allure by Chanel for women Zen Classic by Shiseido for women To view more fine women's perfumes, icons, and search phrases, click here. Auto on Info March 2006
Moody's Cuts GM Creditworthiness Another Notch Deeper into Junk
By James B. Bleeker
On March 29, 2006, Moody's Investors Service cut its creditworthiness rating of General Motors Corporation's long-term debt one notch deeper into junk, from "B2" to "B3." The following table puts General Motors' creditworthiness and the General Motors-Ford race to bankruptcy into perspective.
Table I S&P, Fitch, and Moody's Long-Term Debt Ratings as of March 29, 2006 Ratings Automobile Manufacturers S&P, Fitch Denominations Moody's Denominations Investment Grade Ratings AAA Toyota Motor Corporation AA+ AA AA- A+ Honda Motor Company A A- BBB+ Baa1 BBB Baa2 DaimlerChrysler AG BBB- Baa3 Junk Grade Ratings BB+ Ba1 BB Ba2 Ford Motor Company BB- Ba3 Ford Motor Company, Ford Motor Company B+ B1 B B2 General Motors Corporation, General Motors Corporation B- B3 General Motors Corporation CCC+ CCC CCC- Delphi Corporation (GM's jettisoned aggregation of parts plants is in Chapter 11 bankruptcy.) D Separately, Standard & Poor's said that it was reviewing GM debt and may cut its rating deeper into junk as well..
Moody's retained its negative outlook on GM's long-term debt, meaning that it may cut GM's debt rating further without advance notice.
For more than a decade, U.S. consumers have been abandoning General Motors' products for the quality products of Toyota Motor Corporation and Honda Motor Company, and in the past two years the pace of this abandonment has quickened, as the following chart helps depict.
As it would likely take decades of determination and effort to significantly narrow the quality gap between the Big Two (GM and Ford) and the Reliable Two (Toyota and Honda) (see The Bottom Line on Auto Reliability), the Big Two are left with but one choice: Cut productive capacity to match dropping demand. Although this is normally a clear-cut business solution that puts things back into balance, it's not for these two. GM's and Ford's current contract with the United Auto Workers obligates them to pay furloughed employees most of their wages (after unemployment benefits are exhausted, per the Wall Street Journal), whether working or not. As a result, General Motors and Ford may exhaust their cash before their contract with the UAW expires in 2007. Without cash to pay their bills, GM and Ford would be forced into bankruptcy reorganization. Once there, their bonds may be converted to shares (preferred, common, or some combination of both), the market value of each of which may be but a small fraction of the face value of the preceding bond.
To help cope with the prospective cash crunch, Ford has sold its Hertz Corporation rental division and General Motors has sold its stakes in Fuji Heavy industries Ltd. and Suzuki Motor Corporation and is trying hard to unload a majority stake in its GMAC finance division.
GM has also offered more than 113,000 of its employees a buyout - cash to quit - ranging from $35,000 to $140,000; however, in site manager's opinion, the current buyout offer negotiated by the UAW and GM is more an instrument by which both GM management and UAW management may argue that they have worked to advance the interests of their constituencies (GM's board and shareholders and the UAW's rank and file, respectively) than a buyout offer that any significant number of GM employees will seriously consider (unless there is a broadly held view among GM employees that the shift to quality and out of GM products has gained sufficient momentum to put GM into Chapter 11 bankruptcy within the next year or that a cataclysmic strike at one or more of GM's parts suppliers will succeed in the same). Given present compensation and the buyout's array of restrictions on different classes of employees, a flat $230,000 per employee would seem more realistic.
The gap between GM's credit ratings and those of Ford reflects a common assessment by the credit rating services that GM holds a solid lead in its sprint to insolvency.
Source for Moody's rating cut and outlook: "Moody's Cuts GM's Debt Ratings," Reuters, March 29, 2006, available at Yahoo! News
Source for GM's buyout offer: "Automaker's Downsizing Aims to Ensure Survival," Bill Vlasic and Brett Clanton, Detroit News, March 23, 2006, at http://www.detnews.com/apps/pbcs.dll/article?AID=/20060323/AUTO01/603230402/1148
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In the Table of Ratings of Senior Unsecured Long-Term Debt, GM's unsecured long-term debt ratings by Moody's and Fitch were switched; the table now reports them correctly
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