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Fitch
Cuts GM Debt Deeper into JunkBookmarking Auto on Info pages
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Fitch
Cuts GM Debt Deeper into Junk
Auto on Info September 2005
Fitch Cuts GM Debt Deeper into Junk
By James B. Bleeker
Fitch has cut the long-term debt of General Motors Corporation to two notches into junk. The following table puts GM's current creditworthiness, or lack thereof, into perspective.
Table I S&P, Fitch, and Moody's Long-Term Debt Ratings as of September 26, 2005 Ratings Automobile Manufacturers Investment Grade Ratings AAA Toyota Motor Corporation AA+ AA AA- A+ Honda Motor Company A A- BBB+ BBB BBB- Ford Motor Company Junk Grade Ratings BB+ Ford Motor Company, Ford Motor Company BB General Motors Corporation, General Motors Corporation, General Motors Corporation BB- B+ B B- CCC+ CCC CCC- Delphi Corporation D General Motors' problems appear to arise from two factors: (1) a U.S. consumer shift toward quality and (2) an inability by GM to improve its quality stature.
For more than a decade, U.S. consumers have been shifting into the quality products of Toyota Motor Corporation, Honda Motor Company, and Nissan Motor Company and out of GM products. The following table provides historical U.S. market share changes.
Table II Fractional Shares of the U.S. New Passenger Vehicle Market for the Reliable Two, Nissan, Hyundai, and the Big Three for Years 1993, 1995, 1997, 1999, 2001, 2003, 2004, and Year-to-Date 2005, and Distances Traversed from 1993 Manu- facturer 1993
1995 1997 1999 2001 2003 2004 YTD 2005 Distance Traversed from 1993 Toyota .07 .07 .08 .09 .10 .11 .12 .13 .06 Honda .05 .05 .06 .06 .07 .08 .08 .08 .03 Nissan N/A N/A N/A N/A .04 .05 .06 .06 N/A Hyundai N/A N/A N/A N/A .02 .02 .02 .03 N/A GM .34 .33 .31 .29 .28 .28 .27 .27 -.07 Ford .26 .26 .25 .24 .23 .19 .18 .18 -.08 Chrysler .15 .15 .15 .16 .16 .13 .13 .14 -.01 From the table, it may be seen that General Motors' U.S. market share has gone from 34% in 1993 to 27% in 2005 and that no abatement in the U.S. consumer shift toward quality appears to be in the offing.
In addition, current data give little prospect of an improvement in GM's quality stature. The following table summarizes the 2005 reliability quick picks, the 2005 owner satisfaction quick picks, and the 2005 overall quick picks by Consumer Reports.
Table III Shares of Consumer Reports' 2005 Quick Picks, by Auto Manufacturer and Motor Vehicle Line Manufacturer Share of 2005 Reliability Quick Picks Share of 2005 Owner Satisfaction Quick Picks Share of 2005 Overall Quick Picks Vehicle Line Toyota .63 .47 .33 Lexus .11 .16 .14 Toyota .53 .32 .19 Honda .21 .26 .33 Acura .11 .11 .05 Honda .11 .16 .29 Subaru .05 .11 .14 Nissan 0.00 .05 .14 Infiniti 0.00 0.00 .05 Nissan 0.00 .05 .10 Mazda .05 .05 .051 BMW 0.00 .05 0.00 Mitsubishi .05 0.00 0.00 Ford, Chrysler, General Motors, and all others 0.00 0.00 0.00 1 Mazda's one entry, the Mazda3 i, may have been pulled from Consumer Reports' Overall Quick Pick List due to a "Poor" side-impact crash test rating by the Insurance Institute for Highway Safety. The Insurance Institute's rating did cause Consumer Reports to pull the Mazda3 from its recommended list. All shares are rounded to two significant digits. CR 2005 Quick Picks are quick pick models of model year 2005. Note: A rebadge of a product engineered by Toyota, but sold by another auto manufacturer, is omitted from the latter's share. Source for Consumer Reports' Good Bets: "Quick Picks," Consumer Reports, April 2005, P. 31 From the table, it may be seen that not one GM-engineered model made any of the three quick pick lists.
And the following chart depicts the gap between the Reliability Percentrank averages of Toyota Motor Corporation and those of General Motors and an extrapolation of the gap to 2010. The extrapolation is a linear regression of degree one.
From the chart, it may be seen that the trend is a declining GM reliability stature relative to that of Toyota, from an already rather abysmally low stature.
Consequently, selling cheap, preferably dirt cheap, becomes important for GM's long-term survival. However, Fitch, in lowering its rating of GM's creditworthiness, said that GM has made little progress in lowering its costs.
Source for GM rating cut: "Fitch Ratings Cuts GM Further into Junk," Associated Press, September 26, 2005, available at Yahoo! News
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