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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
April 5, 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 April 5, 2005, Moody's Investors Services, Inc. (Moody's) lowered the
long-term and short-term ratings of General Motors Corporation (GM) and the
long-term rating of General Motors Acceptance Corporation (GMAC). Moody's also
affirmed the short-term rating of GMAC. The rating outlook remains negative for
both companies. Their press release follows.
Approximately $200 Billion in Debt Affected
New York, April 05, 2005 -- Moody's Investors Service lowered the long-term and
short-term ratings of General Motors Corporation to Baa3 and Prime-3 from Baa2
and Prime-2, and also lowered the long-term rating of General Motors Acceptance
Corporation (GMAC) to Baa2 from Baa1. GMAC's short-term rating is affirmed at
Prime-2. The rating outlook for both companies is negative. These rating actions
conclude Moody's review for downgrade that commenced on March 16th following
GM's announcement of a significant negative revision of its 2005 earnings and
cash flow outlook.
The downgrade of GM's ratings reflects Moody's expectation that formidable
long-term challenges in the company's automotive operations -- an uncompetitive
fixed cost structure including burdensome healthcare costs, steadily declining
market share, and an increasingly competitive pricing environment - will extend
the time frame over which a recovery will occur and will also moderate the
strength of any eventual rebound in earnings and cash flow. The downgrade of
GMAC's ratings reflects the significant business and financial ties between GM
and GMAC that influence GMAC's auto finance operations - its origination
volumes, asset mix, and asset quality - and its capitalization.
Moody's said that GM's investment grade ratings are predicated upon the
company's ability to achieve material near term improvement in key credit
metrics. If the prospects for such improvement become less probable, the ability
to sustain the investment grade rating will further diminish. Within the next
six months the rating agency will assess the progress GM is making in laying the
groundwork for adequate improvement in its credit metrics. The key measures that
Moody's will focus on are: GM's ability to maintain US market share near 26%;
its ability to stem cash operating losses such that automotive cash and
short-term voluntary employee beneficiary association (VEBA) balances remain
above $18 billion; and, the progress the company makes in addressing its cost
structure--including health care costs. In addition to these near-term
benchmarks, GM will need to remain on track to deliver credit metrics by 2007
that support an investment grade rating. These metrics include: EBITA margins
that approximate 4%; fixed charge coverage in the 3.5 to 4.0 times range; and
free cash flow to total lease and pension adjusted debt of more than 15%.
The negative outlook recognizes the potential for further downgrades should GM
fail to achieve the above stated near term targets or fail to remain on track to
generate investment grade credit metrics by 2007.
Moody's expects that during the near-term GM will seek to further reduce its
North American cost structure - including its rising annual healthcare costs of
nearly $5 billion. Moody's believes that such initiatives will be critical to
GM's ability to restore appropriate profitability and return measures. Such
initiatives would likely entail potentially large restructuring charges. Moody's
ongoing assessment of GM would consider the likely effectiveness of any
potential strategic or restructuring initiatives in restoring adequate
profitability by year-end 2007.
Funding a restructuring charge or strategic initiative would reduce GM's
liquidity position which has been a critical factor supporting the rating. At
year end 2004, automotive liquidity (cash and short-termVEBA balances) was $23
billion. This compares with $32 billion in balance sheet debt, of which only
$3.5 billion matures during the next five years. However, by year-end 2005, this
liquidity position will likely be reduced to approximately $18 billion as a
result of the following: the $2 billion automotive cash burn forecasted by GM
for 2005; a $2 billion payment for the Fiat settlement; a $1 billion common
dividend payment by GM; the potentially sizable amounts for the European and
other announced restructurings; $0.5 billion in debt repayments; and, the
receipt of approximately $2 billion in dividends from GMAC. Although GM is
expected to maintain adequate liquidity while it pursues restructuring
initiatives, any sustained liquidity below the $18 billion level would be viewed
negatively for rating purposes.
During 2005 GM's North American new product cadence will approximate a robust
25% of total unit sales. The degree to which new products that have already been
launched (G6, Cobalt, LaCrosse and Equinox) and those products that will be
launched later in 2005 (including the Monte Carlo, Impala, Solstice, H3, HHR,
Cadillac DTS, and Lucerne) establish strong market acceptance and enable GM to
maintain market share near 26% will be an important near-term rating
consideration. Healthy performance by these introductions will help lay the
groundwork for a re-establishment of the brand strength of GM's automotive
business, which will be essential if the company is to achieve any rebound in
profitability during the near term. It is noted that recent product
introductions have achieved modest success, but that the company's heavy
reliance on larger SUV's and trucks could make product introductions more
challenging given the continued rise in fuel prices.
The one notch rating distinction between GM and GMAC remains unchanged. An
important consideration in the one notch rating differential is Moody's
expectation that in the event of bankruptcy GMAC's unsecured creditors would
experience superior asset recovery relative to the unsecured creditors of GM. An
additional consideration is the possibility that GMAC might avoid bankruptcy in
the event of the parent's filing. Moody's also believes that it is very likely
that GMAC would be able to maintain its separate corporate identity through
various GM and GMAC stress scenarios and that as a consequence, GMAC's assets
are relatively well-protected from direct claims by parent and affiliate
creditors. Moody's ratings also consider GMAC's strong stand-alone
characteristics, including an earnings base that has shown cyclical resiliency,
reflecting the company's effective credit and risk management practices and the
growing contribution of its mortgage and insurance operations. The rate of net
charge-offs in GMAC's managed consumer auto loan portfolio decreased modestly in
2004, primarily due to the impact of improved auction values on repossession
losses; default frequency has remained relatively stable, demonstrating GMAC's
commitment to sound underwriting. Earnings from insurance and mortgage
operations represented 49% of aggregate GMAC's 2004 profits, up from 30% in
2001, a mix shift that Moody's believes will continue to characterize aggregate
results over the intermediate term. Moody's also counts liquidity management
among GMAC's strengths. In recent years, GMAC has appropriately evolved its
funding profile by lengthening debt maturities, increasing cash balances, and
tapping new sources of funding, taking advantage of the liquidity and high
quality of its finance and mortgage assets. Moody's believes that GMAC's sources
of liquidity could support a viable operating model in a downside scenario,
though operating margins could be negatively impacted by higher funding costs.
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 worlds largest non-bank financial institutions.
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: April 6, 2005 /s/ SANJIV KHATTRI
---------------- -------------------------------------
Sanjiv Khattri
Executive Vice President,
Chief Financial Officer and Director
Dated: April 6, 2005 /s/ LINDA K. ZUKAUCKAS
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Linda K. Zukauckas
Vice President and Corporate Controller