Reuters reports that Moody’s Investors Service on Monday said the outlook for U.S. auto giant General Motors’ credit ratings was negative as it has to pay out cash to settle a disputed put option with Fiat as competitive pressures mount.
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Moody’s affirmed the Baa2 long-term rating of General Motors Corp. and the Baa1 long-term and Prime-2 short-term ratings of General Motors Acceptance Corporation (GMAC), but also changed the outlook to negative on these ratings.
A negative outlook suggests the rating could move down over the next 12 to 24 months, Reuters said. Moody’s rating on GM is two notches above speculative grade, while its rating on GMAC is three notches above speculative grade.
“The change in outlook follows the announcement that GM has agreed to pay Fiat S.p.A. 1.55 billion euros to terminate the Master Agreement between the companies and to realign their industrial relationships,” Moody’s said in a statement.
“Although the 1.55 billion euro payment does not represent a significant erosion in GM’s automotive liquidity position of $23 billion, this outflow comes as the company is facing increasing challenges in its competitive and operating environment,” the agency said.
The market is most concerned about S&P’s rating on the company, since it is at the lowest notch in the investment-grade category. S&P has a stable outlook on the rating, but has said it will consider this year whether that outlook is appropriate.
“In its ongoing assessment of GM’s rating and outlook, Moody’s will focus on the company’s ability to remain on track for delivering more appropriate debt protection measures by 2007 as a result of various new product and cost cutting initiatives,” Moody’s said.
In the near-term, Moody’s said it would consider the company’s ability to maintain U.S. market share, demonstrate solid customer acceptance of products to be launched during late 2005, and reduce U.S. inventory levels.
GM should also wean itself from a relatively high dependence on the U.S. daily rental market and effectively restructure and strengthen its European operations as it unwinds the three-year-old joint venture with Fiat, the agency said, according to Reuters.
