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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
March 16, 2005
(Date of report; date of
earliest event reported)
Commission file number: 1-3754
GENERAL MOTORS ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-0572512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Renaissance Center
P.O. Box 200 Detroit, Michigan
48265-2000
(Address of principal executive offices)
(Zip Code)
(313) 556-5000
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 8.01 Other Events
On March 16, 2005, Standard & Poor's Ratings Services (S&P) affirmed the ratings
of General Motors Corporation (GM) and General Motors Acceptance Corporation
(GMAC), but changed the outlook of both companies to negative from stable. Their
press release follows.
On March 16, 2005, Fitch Ratings (Fitch) downgraded the ratings of GM and GMAC.
The rating outlook remains negative. Their press release follows.
On March 16, 2005, Moody's Investors Services, Inc. (Moody's) placed under
review for possible downgrade the long-term and short-term ratings of GM and the
long-term rating of GMAC. Moody's also affirmed the short-term rating of GMAC.
Their press release follows.
On March 16, 2005, Dominion Bond Rating Service (DBRS) confirmed the ratings of
GMAC and related subsidiaries, but changed the trends to negative from stable.
Their press release follows.
Research Update: General Motors Corp., GMAC Outlook Negative On Announcement Of
Large First-Quarter Loss
Publication date: 16-Mar-2005
Primary Credit Analyst(s): Scott Sprinzen, New York (1) 212-438-7812;
scott_sprinzen@standardandpoors.com
Credit Rating: BBB-/Negative/A-3
Rationale
On March 16, 2005, Standard & Poor's Ratings Services affirmed its 'BBB-'
long-term and 'A-3' short-term ratings on General Motors Corp. (GM), General
Motors Acceptance Corp. (GMAC), and all related entities. The rating outlook is
revised to negative from stable, reflecting heightened concerns regarding the
profit potential of GM's core North American automotive business in the wake of
the company's dramatically revised earnings and cash flow guidance. Consolidated
debt outstanding totaled $301 billion at Dec. 31, 2004.
GM has just disclosed that it expects to generate a large net loss in the first
quarter (even excluding special items, such as a restructuring charge related to
its ailing European operations), compared with previous guidance of breakeven
results. Also, the company now expects full-year 2005 earnings per share of
$1.00 to $2.00, compared with previous guidance of $4.00 to $5.00. Moreover,
GM's automotive operations are now expected to generate a substantial cash
deficit (after capital expenditures, before pension and VEBA contributions and
dividends received from GMAC), instead of contributing the previously targeted
$2 billion surplus.
We now view the rating as tenuous. The rating could be lowered at any point if
we came to doubt that GM was on a trajectory to improving its financial
performance to more satisfactory levels in 2006 and beyond.
U.S. light-vehicle sales have been off only slightly this year to date (down
3.6% in January-February from the same period a year earlier), and industry
sales remain relatively robust. Yet, GM's sales performance in the U.S. has
eroded significantly. Its U.S. light-vehicle unit sales during January-February
were off 9.9% from the same period in 2004. Consequently, its U.S. market share
reached a record low of 24.4% in February, and substantial production cuts have
been necessary.
This year represents a hiatus for GM in its product renewal cycle. But
confidence that performance will be bolstered by the eventual introduction of
new products is diminished because sales of major new products it has introduced
recently have generally not met expectations. Of greater consequence for
profitability, GM has experienced marked sales weakness across its midsize and
large sport utility vehicles (SUVs), despite significantly increased incentives.
These products previously had contributed highly disproportionately to GM's
earnings. However, industrywide demand for SUVs has evidently stalled, partially
explained by persistent high gasoline prices. In addition, competition has
intensified, due to a proliferation of new SUVs. GM has suffered from the aging
of its SUV product line, which will be replaced by a family of new products
during 2006 and 2007, but it is questionable whether these will generate the
profit margins the company has enjoyed historically.
GM's automotive operations outside North America, and its finance
operations--conducted through GMAC--continue to meet or exceed earnings
expectations, but this has not been sufficient to offset GM's disappointing
performance in North America.
Unless the cash generating ability of GM's automotive operations improves, its
burdensome postretirement benefits obligations could become onerous. Owing to
favorable investment portfolio returns, we estimate that GM was able to reduce
its worldwide unfunded pension level to a relatively small amount at year-end
2004, compared with an $8.6 billion deficit at year-end 2003, even with the
adverse measurement effect of a downward revision of the discount rate. (These
net liability figures do not include $13.5 billion of debt issued in 2003 to
finance pension contributions.) However, even with $9 billion of VEBA
contributions during 2004, favorable investment portfolio returns, and the
estimated $4 billion benefit of the new Medicare prescription drug program, its
U.S. unfunded retiree medical liability ($53.8 billion at year-end 2004) barely
declined from the massive level ($54.5 billion) at year-end 2003 due to the
effect on the liability of an upward revision of the assumed near-term health
care cost trend rate--in light of recent adverse experience--and a downward
revision of the discount rate.
Short-term credit factors.
GM's short-term rating is 'A-3', as is GMAC's. GM's fundamental challenges are
short- and long-term in nature. However, GM's liquidity and financial
flexibility minimize any potential for near-term financial stress. We believe
GM's negative automotive cash flow in 2005 will be offset by the cash flow
generated from the GMAC operations, such that the company's overall liquidity
will not be impaired by the current poor financial performance. But, the rapid
erosion in GM's near-term performance prospects points up its high operating
leverage and the relative lack of near-term earnings and cash flow visibility.
Key aspects of GM's financial flexibility and liquidity are as follows:
o A large liquidity position--Cash, marketable securities, and
short-term VEBA funds totaled $23.3 billion at Dec. 31, 2004
(excluding GMAC);
o Moderate near-term, parent-level debt maturities--Long-term debt has
an exceptionally high average maturity;
o In the wake of recent funding actions, GM faces neither ERISA-mandated
pension fund contributions through this decade nor the need to make
contributions to avoid Pension Benefit Guaranty Corp. variable-rate
premiums; and
o As of Sept. 30, 2004, GM had unrestricted access to a $5.6 billion
committed bank credit facility expiring in June 2008, $800 million in
committed credit facilities with various maturities, and uncommitted
lines of credit of $1.7 billion.
GMAC has substantial ongoing funding needs. As of Sept. 30, 2004, short-term
debt (including current maturities of long-term debt) was $87.6 billion, not
including maturing off-balance-sheet securitizations. Reflecting the close
linkage between GMAC and GM, GMAC's funding flexibility has suffered in recent
years from the problems affecting GM's automotive operations. Thus, GMAC's
unsecured bond spreads have been volatile, calling into question the extent to
which GMAC can rely on consistent future access to the public unsecured debt
market.
However, GMAC has responded by taking the following actions:
o Accumulating a large cash position ($24.4 billion at Sept. 30, 2004);
o Expanding its relatively less-credit-sensitive retail debt issuance
programs, such as its SmartNotes program;
o Diversifying its securitized funding channels, including expanding
its bank conduit ABS and, recently, completing a securitization of
lease assets;
o Entering the nascent whole-loan market and establishing committed,
whole-loan sale flow agreements; and
o Commencing operations of GMAC Automotive Bank, a Utah-chartered ILC.
At Sept. 30, 2004, GMAC had a $4.6 billion syndicated line of credit committed
through June 2005, $4.4 billion committed through June 2008, $4.6 billion of
bilateral committed lines with various maturities, and $21.3 billion in
uncommitted lines of credit. In addition, New Center Asset Trust (NCAT) had
$19.5 billion of liquidity facilities committed through June 2005. Mortgage
Interest Networking Trust (MINT) had $3.4 billion of liquidity facilities
committed through April 2005. NCAT and MINT are qualified special-purpose
entities administered by GMAC for purchasing assets as part of GMAC's
securitization and mortgage warehouse funding programs. These entities fund the
purchase of assets through the issuance of asset-backed commercial paper. GMAC
also had $54.8 billion in funding commitments (of which $25.6 billion was
unused) with third parties, including third-party asset-backed commercial paper
conduits that may be used as additional secured funding sources.
A leverage covenant in the bank credit facilities restricts the ratio of
consolidated debt to total stockholders' equity to no more than 11.0 to 1
(excluding on-balance-sheet securitized debt from the definition of consolidated
debt). Per this definition, the debt-to-equity ratio was 8.0 to 1 at Sept. 30,
2004. This covenant would be problematic only if, contrary to our expectations,
GMAC's access to the ABS market were disrupted. (GM and GMAC have no financial
covenants or other credit triggers in financing arrangements that we view as
potentially problematic.)
GMAC's automotive asset composition is highly liquid, given that about half of
its total gross receivables is due within one year and that a substantial
portion of receivables is typically repaid before contractual maturity dates.
However, GMAC is constrained in its ability to reduce the size of its automotive
portfolio, given its need to support GM's marketing efforts. Given the
liquidation of loans originated in recent years, GMAC's automotive asset levels
are unlikely to increase substantially in the next one to two years, even if
price competition in the auto sector remains intense as expected. As part of its
funding diversification strategy, GMAC is pursuing opportunities to fund part of
its commercial mortgage operations externally. In addition, we believe that if
GM were to experience liquidity pressures, it could monetize GMAC's mortgage
operations.
GMAC has disclosed that it is considering a restructuring of its residential
mortgage operations, involving placement of its two existing residential
mortgage subsidiaries within a newly formed holding company. If this
restructuring enables the existing, substantial intercompany advances extended
by GMAC to the mortgage units to be refinanced externally, we believe it would
represent a modest positive development for GM and GMAC because it would enhance
funding flexibility. (Note: Given the establishment of separate funding channels
and satisfactory corporate governance protections, and if our assessment of the
separate business position and financial condition of the newly formed entity
warranted this, we could rate this entity a notch or two higher than GM/GMAC, in
keeping with our long-standing approach to rating noncaptive finance
subsidiaries of industrial parents. We believe such an approach would be
appropriate under the assumption that, if the parent experienced financial
distress, it would most likely divest a noncaptive finance business rather than
take actions that would harm the subsidiary's credit quality. Even so, the risks
stemming from ownership affiliation could never be dismissed entirely. However,
GMAC, given its predominantly captive role, will continue to be rated the same
as GM. We regard GMAC and GM as a single economic entity, with effectively the
same default risk, given their strategic importance to each other, GM's ability
to influence GMAC's actions, and the ultimate risk that, in the unlikely event
that GM were to file for bankruptcy, this would precipitate a bankruptcy filing
by GMAC.)
Outlook
We now view the rating as tenuous. The rating can tolerate several quarters of
weak profitability and cash flow, but only under the assumption that financial
performance improves to more satisfactory levels thereafter. The rating could be
lowered at any point if we came to doubt that GM was on a trajectory to
realizing such improvement. In keeping with our policies, the rating would not
necessarily be placed on CreditWatch prior to a downgrade.
Fitch Ratings Lowers GM & GMAC to 'BBB-'; Outlook Remains Negative 16 Mar 2005
2:27 PM (EST)
Fitch Ratings-Chicago-March 16, 2005: Fitch Ratings has downgraded the credit
ratings of General Motors Corporation (GM), General Motors Acceptance
Corporation and affiliated entities to 'BBB-' from 'BBB'. The Rating Outlook
remains Negative. Fitch also lowers the commercial paper rating of both entities
to 'F3'. A full list of affected entities is listed below.
The downgrades are based on the continuing deterioration in GM's market share
and operating profile, the expectation of negative cash flow over the near term
as GM adjusts its inventory through production cuts, and the potential for even
further balance sheet deterioration through early 2006 as GM weathers the depth
of its product cycle. In addition, GM is being particularly impacted by adverse
sales mix, as declining sales in the large SUV and large pickup markets (which
represent the bulk of GM's operating profitability), have deteriorated over the
last several months. Changing consumer preferences and increased competition
could make this sector, and GM, particularly hard hit over the near term. GM has
accelerated the pace of product introductions in 2005, but new products have
been concentrated in the less profitable segments. GM's critical product launch
will be the 900 series which will be introduced beginning in early 2006. GM's
difficulties are augmented by its high and inflexible cost structure,
unrelenting price competition, continued industry expansion and over-capacity,
and increasing raw material and legacy costs. In addition, this has occurred
amidst a relatively favorable economic growth environment.
Stabilization of the ratings will require stemming market share losses, further
improvements to the company's cost position so that GM is able to sustain
consistent free cash flow during a period of steady economic growth, successful
product launches across a wider range of its product portfolio, and
stabilization of the balance sheet. Ratings could fall to non-investment grade
if Fitch expects that continuing adverse trends in volumes, sales mix and
pricing necessitate further material production cutbacks in the second half of
2005, incremental negative free cash flow through 2005 beyond current
expectations, continuing balance sheet deterioration, and if Fitch expects these
trends to persist through 2006. Fitch is also concerned that continuation of
existing sales trends has raised the level of event risk -- the risk of
accelerated restructuring moves, brand rationalization, and the potential for
increased labor strife as GM attacks its cost structure. The Outlook remains
Negative and indicates that the rating could be reviewed for further action at
any time that new information would warrant it.
GM's liquidity remains healthy, with approximately $23 billion in cash and s/t
VEBA on hand at yearend. GM's balance sheet has deteriorated over the past
several years, with debt increasing substantially in 2003 in order to fund the
company's US pension plans. The company has also sold off various assets with
proceeds contributed to its pension plans. Debt levels increased to $32.5
billion at yearend 2004 from $16.3 billion at yearend 2002. GM retains access to
$8.3 billion in committed credit lines ($6.5 billion in committed facilities and
$1.8 billion in uncommitted facilities)
Over the intermediate term, Fitch will be focused on the company's ability to
arrest market share losses through attractive new product offerings and its
capacity to address its cost structure. GM's GMT-900 platform, to be introduced
in early calendar 2006 will serve as the basis for a number of product launches
in the large SUV and pickup segments. This will serve as a critical platform for
GM in order to maintain its position in this segment. Continued transplant
expansion and the accelerated pace of product refreshment in the industry,
however, indicate that even in the event of a successful launch, the window to
maintain pricing may be relatively short. In addition, the breadth of GM's brand
and product portfolio make it essential that GM produce successful vehicles
across a much broader spectrum of its offerings. GM's high cost structure makes
it particularly vulnerable to production cutbacks. As GM adjusts its inventory
through production cutbacks in the first half, substantial negative cash flow
will result , reducing GM's liquidity cushion. If sales trends continue, this
negative cash flow could be exacerbated through yearend 2005.
GM's cost structure remains competitively disadvantaged, as GM has been unable
to ratchet down its costs in line with its declining market. In particular, GM's
health care costs continue to increase at roughly $500-600 million per year, and
could approach $6 billion in 2005. Approximately 2/3 of these expenditures are
related to retiree health care. Fitch views the pace of these cost increases as
unsustainable, and GM may be forced to explore this issue with the union prior
to 2007. GM has aggressively funded its long-term VEBA accounts, which now stand
at approximately $20 billion. Earnings on this portfolio will help to offset
rising health care costs, and the size of the portfolio adds to GM's flexibility
in meeting these obligations over the near term.
Concerns also focus on GMs performance in Europe, where despite some recent
share gains, the company has been unable to reverse years of losses. Focused
production in high and inflexible cost locales places GM and other entrenched
competitors at a competitive disadvantage versus transplants that are
increasingly locating production in low-cost Eastern European locations.
Improved distribution has also allowed the transplants to gain share. Operating
improvements at GM are likely to be accomplished only on a gradual basis, and it
is Fitch's view that further significant restructuring actions may be required.
The ratings actions on GMAC primarily reflect its ownership and strategic
importance to GM. Aside from this, Fitch believes that GMAC has performed well
in terms of operating performance and credit quality in both its auto finance
and mortgage businesses. Moreover, Fitch recognizes actions taken by GMAC to
bolster liquidity such as increased whole-loans sales and securitization of auto
finance receivables as well as movement away from institutional debt markets. As
such, Fitch views near-term liquidity to be sound, however, could this be
negatively affected longer-term if GM's rating falls further.
Moody's Investors Service Global Credit Research
Rating Action
16 MAR 2005
Rating Action: General Motors Acceptance Corporation
MOODY'S REVIEWS Baa2 RATING OF GM AND Baa1 RATING OF GMAC FOR POSSIBLE
DOWNGRADE; GMAC'S PRIME-2 RATING AFFIRMED.
Approximately $150 Billion of Debt Affected
New York, March 16, 2005 -- Moody's Investors Service placed under review for
possible downgrade the Baa2 long-term and Prime-2 short-term ratings of General
Motors Corporation and the Baa1 long-term rating of General Motors Acceptance
Corporation (GMAC). Moody's also affirmed the Prime-2 short-term rating of
GMAC.
Moody's said that the rating review is prompted by GM's announcement that its
automotive earnings and cash generation will be much lower than previous
guidance had suggested. GM's 2005 earnings outlook (consolidated net income
before extraordinary items) has fallen to the range of $0.6 billion - $1.1
billion from the earlier expectation of $2.2 billion - $2.8 billion. Moreover,
GM is anticipating that its automotive operations will consume nearly $2
billion in cash (prior to the receipt of a $2 billion dividend from GMAC) as
compared with prior expectations for $2 billion in automotive cash generation.
this represents a significant $4 billion negative variance. These earning and
cash flow declines reflect The deteriorating performance of GM's North American
automotive operations (GMNA) which are now likely to generate a loss in excess
of $1 billion reflecting, in part, an erosion in market share position that
declined to 24.7% for the two months to February 2005, from 27.6% for calendar
2004 despite ongoing price incentives.
Moody's anticipates that GM may need to undertake material restructuring
initiatives in order to reduce the capacity and lower the breakeven level of
its North American operations. Along with these market and competitive
challenges, GM will also continue to face rising healthcare costs associated
with its large retired employee base. The company's Other Post Employment
Benefit (OPEB) liability is approximately $75 billion (before about $3.5
billion in short-term Voluntary Employee Benefit Account (VEBA) balances and
$16.5 billion in long-term VEBA balances), and annual health care expenditures
are about $5 billion.
Moody's said that its review will focus on GM's ability to implement necessary
cost cutting initiatives and new product programs, and restore sufficiently
robust earnings and cash generation to support its debt and significant
employee-related legacy costs. In order to sustain the current rating, GM will
need do demonstrate that it has a compelling new product strategy and cost
reduction program that can be effectively implemented during 2005 and 2006.
Moody's believes that GM has demonstrated an ability to establish a competitive
variable cost structure in North America, and to successfully revive the brand
image of its products -- particularly its truck franchise during 1999 through
2002, and its Cadillac brand. It is expected that GMNA's new product cadence
will considerably accelerate during late 2005 and b006. These factors could
enable GM to lay a foundation to begin improving its performance.
In order to appropriately support a Baa2 rating, the cost reduction and new
product initiatives undertaken by GM would need to generate credit metrics that
approximate the following by 2007: EBITA margin should exceed 4%; fixed charge
coverage should be in the 4.0 to 4.5 times range; retained cash flow to net
total debt should exceed 50%; and free cash flow to total debt should be
greater than 15%. For 2004, GM's metrics approximated the following: EBITA
margin of less than 1%; fixed charge coverage below 2 times; retained cash flow
to net debt moderately in excess of 35%; and, free cash flow to total debt of
about 10%.
As GM attempts to weather the operational and financial challenges of 2005, and
to re-establish a more competitive business model by 2007, the automotive
operations should continue to benefit from a sound liquidity position. At year
end 2004, automotive cash, securities and short-term VEBA balances approximated
$23 billion (prior to the $2 billion in payments expected to be made during
2005 in connection with the Fiat settlement agreement). The company also had
$16.5 billion in long-term VEBA balances. This liquidity position compares with
$32 billion in balance sheet debt, $3 billion in present value of leases, and
about $9 billion in unfunded pension liabilities (mostly international).
Moody's estimates that GM's balance sheet debt has an average maturity of 19
years with only about $3 billion maturing over the next five years.
Moody's also placed the long-term ratings of GMAC under review for possible
downgrade, while affirming the company's Prime-2 short-term ratings. This
action reflects the significant business ties between GM and GMAC that
influence GMAC's origination volumes, asset mix, and asset quality. The review
is not a result of a change in Moody's views regarding GMAC's intrinsic credit
strengths, including its resilient earnings base and strong liquidity. GMAC has
appropriately evolved its funding profile by lengthening debt maturities and by
tapping new sources of funding, taking advantage of the liquidity and high
quality of its finance and mortgage assets. Moody's will continue to monitor
GMAC's liquidity under various downside scenarios.
General Motors Corporation, headquartered in Detroit, Michigan, is the world's
largest producer of cars and light trucks. GMAC, a wholly-owned subsidiary of
GM, provides retail and wholesale financing in support of GM's automotive
operations and is one of the world's largest non-bank financial institutions.
DBRS
Wednesday, March 16, 2005
Press Release
General Motors Acceptance Corporation's & Related Subsidiaries
Changes Trends to Negative from Stable
Date of Release: March 16, 2005
Dominion Bond Rating Service ("DBRS") has today changed the trends on the debt
of General Motors Acceptance Corporation ("GMAC" or the "Company") and its
subsidiaries to Negative from Stable.
The trend change follows today's announcement that General Motors Corporation
("GM") is lowering its guidance on earnings (excluding special items) from US$4
to US$5 per share to US$1 to US$2 per share. In addition, GM also expects
negative operating cash flow in 2005 of approximately US$2 billion, before the
Fiat S.p.A. settlement and GM Europe restructuring, compared with the previously
target of positive US$2 billion. The deterioration in operating performance and
cash flow generation, mostly due to weak performance in GM's North American
operation, is well below DBRS's expectation. DBRS has downgraded the ratings of
GM, the parent of GMAC, today to BBB from BBB (high) and changed the trends to
Negative.
DBRS notes, however, that GMAC continues to perform well and the credit quality
of its finance portfolio remains strong, and DBRS policies allow for a captive
finance company rated higher than the parent. (See DBRS press release dated
February 14, 2005, for full details). Hence, the trends on GMAC's ratings are
changed to Negative to reflect the rating differential between GM and GMAC.
Note: General Motors Acceptance Corporation of Canada, Limited; General Motors
Acceptance Corporation (N.Z.) Limited; General Motors Acceptance Corporation,
Australia; GMAC Bank GmbH, GMAC Commercial Mortgage Funding, plc; GMAC
Commercial Mortgage Japan, K.K.; and GMAC International Finance B.V. debt is
guaranteed by General Motors Acceptance Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS ACCEPTANCE CORPORATION
-------------------------------------
(Registrant)
Dated: March 17, 2005 /s/ SANJIV KHATTRI
---------------- -------------------------------------
Sanjiv Khattri
Executive Vice President,
Chief Financial Officer and Director
Dated: March 17, 2005 /s/ LINDA K. ZUKAUCKAS
---------------- -------------------------------------
Linda K. Zukauckas
Vice President and Corporate Controller