DBRS Comments on General Motor’s Revised Viability Plan

DBRS notes that General Motors Corporation (GM or the Company) yesterday submitted a revised Restructuring Plan (the Revised Plan) to the United States Department of the Treasury. The Revised Plan has no immediate impact on GM’s current ratings, with the Issuer Rating remaining at CC, with a Negative trend. DBRS continues to be of the opinion that the Company has just sufficient liquidity to maintain operations over the near term, with the Revised Plan seeking additional government funding relative to the $18 billion initially requested under the Company’s previous restructuring plan submitted on December 2, 2008. DBRS also notes that, absent additional funding, the Company’s liquidity position could fall below minimally required levels in the near term.

With respect to funding, the Revised Plan requests an additional $4.5 billion to repay GM’s secured debt that matures in 2011 (previously, the Company had assumed that this debt would be rolled over). Furthermore, citing global automotive conditions even more depressed than those stipulated only two months prior, GM has also outlined a new downside scenario where the U.S. seasonally adjusted annual rate (SAAR) in 2009 drops to 9.5 million units (from 10.5 million units). Under this revised downward scenario, the Company would seek an additional $7.5 billion. As such, currently GM’s total ask potentially amounts to $30 billion; DBRS notes that thus far, $13.4 billion in U.S. Troubled Assets Relief Program (TARP) funding has been disbursed. GM further disclosed that it is also seeking additional support from various other governments, including Australia, Canada and Germany; such incremental funding could amount to as much as $6 billion by 2010.

Regarding GM’s deliverables, the Company has outlined the progress it has made on several fronts. With respect to brand consolidation, GM has now specified that this would be completed by 2011, with four core brands remaining: Chevrolet, Cadillac, Buick and GMC. Pontiac would be positioned as a niche brand going forward, with HUMMER and Saab subject to either sale or reorganization in the very near future. Saturn is to remain open through the life cycle of its current product portfolio, assumed to end in 2011. Subsequently, absent a sale or spin-off, Saturn would be phased out. GM also further reduced its number of U.S. manufacturing plants by 2012 to 33 from 38; (DBRS notes that the targeted plants have yet to be identified).

GM also indicated that it has reached a new agreement with the United Auto Workers (UAW) to further lower labour costs to a level that is competitive with the transplant automotive manufacturers; however, no specifics have been provided. Similarly, the Company stated that negotiations with its unsecured bondholders are progressing, with no further details being disclosed.

Finally, GM revealed that while it has further investigated entering into formal bankruptcy proceedings, the Company remains of the opinion that its restructuring would be best achieved outside of such a process. However, DBRS notes that should the Revised Plan be ultimately approved by the U.S. government and result in additional funding, the Company’s liquidity position would remain weak and not fundamentally changed. For the time being, previous rating actions related to GM sufficiently incorporate its current credit profile. However, the extremely volatile market conditions do not preclude further rating actions in the near term.

Notes:
All figures are in U.S. dollars unless otherwise noted.
The applicable methodology is Rating Automotive, which can be found on our web site under Methodologies.
This is a Corporate (Autos and Auto Parts) rating.