GM Credit Rating Cut Again
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GM Credit Rating Cut Again
http://www.thecarconnection.com/index.asp?article=7666
Perhaps GM shouldn't have done the responsible thing (i.e. completely funding the pension shortfalls).
GM Credit Rating Cut Again
General Motors Corp. had its credit rating trimmed to a notch above junk bond status after its automotive operations in both North American and Europe finished in the red for the quarter as the company continued to struggle with overcapacity and falling prices in both regions.
GM's losses in European and North American automotive business during the third quarter were offset by positive results from company's financing unit, GMAC and allowed the company to post a profit.
Nevertheless, many credit-rating services, concerned that the company faces serious challenges, trimmed their ratings on GM's outstanding debt. Standard & Poors cut GM's overall credit rating to BBB-, the lowest rating in the firm's investment grade category. Fitch Ratings also took down GM's ratings one notch and the third major rating service, Moody's, warned it also could downgrade GM soon.
Meanwhile, key suppliers have seen their stock prices fall in the wake of the disappointing third quarter results, while workers in Germany, where GM Europe is promising sweeping cuts, are promising to renew a strikes that began last week.
Justified or not?
John Devine, GM's chief financial officer, told analysts that he did not believe the downgrades were justified and would raise the company's concerns directly with the agencies. Devine also said GM now expects to earn only $6.50 per share rather than $7 per share as he had predicted earlier this year.
The cuts in GM's credit rating will have only minimal impact on GM's operations since most of GM's financing is in place for the current calendar year, Devine added. However, with GM's profitability now resting on its finance operations, the downgrade could have an impact in the future.
During the third quarter, GMAC, GM's credit arm, posted a profit of more than $656 million, which was more than enough to offset the losses piled up by the company's automotive units. But $302 million of GMAC profits came from GM's mortgage unit. Only $259 million of GMAC's profits came from financing of automobiles and another $95 million came from its insurance unit, which is tied to the automotive financing operations. Overall, GM reported net income of $425 million, or 79 cents per share, during the same period. Revenue this year was up three percent to $44.9 billion, GM officials said.
Globally, GM's automotive business reported a loss of $130 million in the third quarter of 2004, compared with net income of $34 million in the prior-year period. GM North America reported a loss of $22 million in the third quarter of 2004, compared with earnings of $128 million in the third quarter of 2003 as a result of lower production volumes and an unfavorable product mix and falling prices.
GM Europe reported a loss of $236 million in the third quarter of 2004, compared with a loss of $152 million in the year-ago quarter. GM Asia was profitable in the third quarter but earnings dropped to $101 million from $161 million a year ago. The drop was mainly due to a slowdown in vehicles sales in China. GM, however, still made more than $80 million from its Chinese business, Devine said. Profits from GM business in Latin America and the Middle East/Africa increased in the third quarter as economies in Brazil and Argentina began to show more strength, he said.
Consequently, GM's Latin American business earned $46 million in third quarter after losing money a year ago.
Richard Wagoner, GM's chairman, said the results reflected the fact the competition in the automotive business around the globe remains intense. "Even though we increased market share in all four regions, our automotive earnings in the third quarter reflect these challenging market conditions, and were frankly disappointing," he added.
In addition, health-care costs in the United States continue to increase at an excessive rate and are a growing burden on GM's financial results. "These continuing large increases in healthcare costs put GM, and many other U.S. businesses, at a significant disadvantage," said Wagoner.
Wagoner nonetheless insisted that GM's overall strategy is basically sound. GM expects to continue introducing a steady stream of new products in all of its major markets around the world and will market them aggressively as it attacks costs, he said.
General Motors Corp. had its credit rating trimmed to a notch above junk bond status after its automotive operations in both North American and Europe finished in the red for the quarter as the company continued to struggle with overcapacity and falling prices in both regions.
GM's losses in European and North American automotive business during the third quarter were offset by positive results from company's financing unit, GMAC and allowed the company to post a profit.
Nevertheless, many credit-rating services, concerned that the company faces serious challenges, trimmed their ratings on GM's outstanding debt. Standard & Poors cut GM's overall credit rating to BBB-, the lowest rating in the firm's investment grade category. Fitch Ratings also took down GM's ratings one notch and the third major rating service, Moody's, warned it also could downgrade GM soon.
Meanwhile, key suppliers have seen their stock prices fall in the wake of the disappointing third quarter results, while workers in Germany, where GM Europe is promising sweeping cuts, are promising to renew a strikes that began last week.
Justified or not?
John Devine, GM's chief financial officer, told analysts that he did not believe the downgrades were justified and would raise the company's concerns directly with the agencies. Devine also said GM now expects to earn only $6.50 per share rather than $7 per share as he had predicted earlier this year.
The cuts in GM's credit rating will have only minimal impact on GM's operations since most of GM's financing is in place for the current calendar year, Devine added. However, with GM's profitability now resting on its finance operations, the downgrade could have an impact in the future.
During the third quarter, GMAC, GM's credit arm, posted a profit of more than $656 million, which was more than enough to offset the losses piled up by the company's automotive units. But $302 million of GMAC profits came from GM's mortgage unit. Only $259 million of GMAC's profits came from financing of automobiles and another $95 million came from its insurance unit, which is tied to the automotive financing operations. Overall, GM reported net income of $425 million, or 79 cents per share, during the same period. Revenue this year was up three percent to $44.9 billion, GM officials said.
Globally, GM's automotive business reported a loss of $130 million in the third quarter of 2004, compared with net income of $34 million in the prior-year period. GM North America reported a loss of $22 million in the third quarter of 2004, compared with earnings of $128 million in the third quarter of 2003 as a result of lower production volumes and an unfavorable product mix and falling prices.
GM Europe reported a loss of $236 million in the third quarter of 2004, compared with a loss of $152 million in the year-ago quarter. GM Asia was profitable in the third quarter but earnings dropped to $101 million from $161 million a year ago. The drop was mainly due to a slowdown in vehicles sales in China. GM, however, still made more than $80 million from its Chinese business, Devine said. Profits from GM business in Latin America and the Middle East/Africa increased in the third quarter as economies in Brazil and Argentina began to show more strength, he said.
Consequently, GM's Latin American business earned $46 million in third quarter after losing money a year ago.
Richard Wagoner, GM's chairman, said the results reflected the fact the competition in the automotive business around the globe remains intense. "Even though we increased market share in all four regions, our automotive earnings in the third quarter reflect these challenging market conditions, and were frankly disappointing," he added.
In addition, health-care costs in the United States continue to increase at an excessive rate and are a growing burden on GM's financial results. "These continuing large increases in healthcare costs put GM, and many other U.S. businesses, at a significant disadvantage," said Wagoner.
Wagoner nonetheless insisted that GM's overall strategy is basically sound. GM expects to continue introducing a steady stream of new products in all of its major markets around the world and will market them aggressively as it attacks costs, he said.
Last edited by redzed; Oct 21, 2004 at 08:49 AM.
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Re: GM Credit Rating Cut Again
And here is the key... making the everything work as a WHOLE...
During the third quarter, GMAC, GM's credit arm, posted a profit of more than $656 million, which was more than enough to offset the losses piled up by the company's automotive units. But $302 million of GMAC profits came from GM's mortgage unit. Only $259 million of GMAC's profits came from financing of automobiles and another $95 million came from its insurance unit, which is tied to the automotive financing operations. Overall, GM reported net income of $425 million, or 79 cents per share, during the same period. Revenue this year was up three percent to $44.9 billion, GM officials said.
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