DBRS Confirms General Motors Company at BBB (low), Trend Changed to Positive from Stable

DBRS Limited (DBRS) has today confirmed the long-term debt ratings of General Motors Company (GM or the Company). The trend on the ratings has been changed to Positive from Stable. The rating action reflects GM’s improving financial performance (despite varying regional industry conditions) amid the Company’s robust financial risk profile, with credit metrics exceeding levels commensurate with the current ratings. DBRS notes that GM’s business profile may be subject to moderate strengthening, reflecting not only the recent earnings momentum in North America but also progress in its international operations, with the Company well positioned to benefit from the ongoing growth of the global auto industry.

In September 2015, GM announced a settlement regarding the Company’s ignition switch issue with the United States Department of Justice, in which it agreed to a fine of $900 million (in exchange for deferred prosecution on related charges). Concurrently, GM also indicated that it had settled associated civil lawsuits for the amount of $575 million. These measures, in addition to the conclusion of GM’s Feinberg compensation program (estimated at $625 million), significantly resolve most issues associated with its extensive ignition switch vehicle recalls. DBRS notes that, notwithstanding the negative publicity and costs incurred in connection with the recalls, GM’s fundamental performance (in terms of sales/market share) in its core market proved highly resilient. Moreover, margins in North America have been strengthening and through the first half of 2015 approached 10%, with margins expected to remain robust going forward in line with the Company’s strong product cadence amid local industry conditions that remain favourable.

Additionally, the Company is making progress in its international operations. While losses in Europe will persist this year, they are expected to narrow vis-à-vis 2014 with GM remaining on track to attain profitability next year given the significant completion of its restructuring efforts in the region amid the recent/upcoming launches of the Opel Corsa and Astra (which represent more than half of the Company’s European sales). In China, despite a marked contraction in industry growth this year, equity income from GM’s joint ventures is expected to remain solid in line with ongoing cost-reduction efforts and projected firmer product mix, with GM’s product portfolio being materially more diversified than that of most competitors. Finally, while South America remains difficult amid very strong economic headwinds, DBRS notes that the Company’s regional performance remains quite favourable relative to most of its peers.

While GM adopted a slightly less conservative financial policy earlier this year, DBRS notes that the revised policy remains wholly consistent with the BBB rating category, with the industrial operations maintaining a strong balance sheet and substantial liquidity position. Should the Company’s international operations continue to improve and collectively contribute to GM’s automotive results, this would likely lead to an upgrade in the ratings, which DBRS anticipates could likely occur in the near future. Finally, while the Company is currently in negotiations with the United Auto Workers Union for a new four-year collective bargaining agreement, DBRS does not expect such developments to result in a rating action, although a particularly adverse outcome (which, among others, would include a prolonged strike action) could potentially trigger an event-driven review of ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Automotive Manufacturing Industry, which can be found on our website under Methodologies.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.