GM can't shake Wall Street's bankruptcy fears (full text)

Nomen Nescio · Dec 13, 2005

GM can't shake Wall Street's bankruptcy fears

Credit agency lowers automaker's debt rating further, citing concerns over
financial losses.

Brett Clanton / The Detroit News

December 13, 2005

Saying a bankruptcy by General Motors Corp. is no longer "far-fetched," a
key Wall Street ratings firm on Monday downgraded GM's debt further into
junk territory.

The move by Standard & Poor's reflects concern about GM's ability to repay
its debt amid growing financial losses and skepticism about the
automaker's turnaround prospects.

"In the past, we might have felt at different points that the concerns
about bankruptcy risk were way overplayed," said Scott Sprinzen, analyst
for Standard & Poor's, in a conference call Monday. "But at this juncture,
it's our conclusion that this isn't a far-fetched possibility if the kind
of deterioration in results that we've seen over the last few quarters
should continue."

The downgrade is the latest blow to GM, which is reeling after nearly $5
billion in North American automotive losses this year

S&P said it lowered GM's debt rating by two notches, to B from BB-, after
seeing a continuous erosion of the company's sales and U.S. market share
even as it works to improve the appeal of its cars and trucks. The firm
expressed doubt that new large SUVs arriving in 2006 will bring the
comeback the company predicts, given a consumer shift away from the
gas-thirsty haulers.

The downgrade also reflects uncertainty over the outcome of GM's dealings
with bankrupt auto supplier Delphi Corp. GM could be on the hook for up to
$12 billion in pension and benefit obligations to the auto parts maker,
which it spun off in 1999. Union workers at Delphi are also threatening to
strike over proposed wage cuts -- a move that could shut down GM, its
biggest customer, in days.

"The main road to bankruptcy for GM for now would have to go through a
protracted strike at Delphi, which is a critical variable that may still
work out," said Credit Sights analyst Glenn Reynolds.

GM's dismal credit rating means the company pays more to borrow money.
That's one reason the automaker wants to sell a majority stake in its GMAC
financing unit. As a separate company, GMAC could secure a better debt
rating and save millions in borrowing costs.

While S&P did applaud recent cost-cutting moves by GM, including a
recently announced plan to shed 12 facilities and 30,000 hourly jobs by
2008, the firm said the automaker may not see the benefit of the savings
for several years.

GM spokesman Jerry Dubrowski reiterated that the automaker has no strategy
or intention to declare bankruptcy. "We have an aggressive and
well-thought-out strategy for returning our North American business to
profitability, and we are making progress."

The downgrade is the fourth this year from S&P and comes a week after GM
said it will move Fritz Henderson, chief of its European division, to
replace John Devine as chief financial officer of the company in Detroit.

S&P said it will maintain its negative outlook of GM and will monitor the
company in coming months for more possible downgrades. However, the firm
left its rating of GMAC unchanged.

While GM faces many risks, a $19 billion cash hoard should help the
company stave off major bankruptcy threats for at least a few months, said
Shelly Lombard, a bond analyst with Gimme Credit Publications in New York.

"But out past six to nine months," she said, "it starts to get real fuzzy
for this company."

You can reach Brett Clanton at (313) 222-2612 or .
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GM can't shake Wall Street's bankruptcy fears (full text)

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