Bloomberg News

S&P Raises GM to Highest Junk Rating While Ford May Follow

September 29, 2011

(Updates GM and Ford shares in ninth paragraph)

Sept. 29 (Bloomberg) -- General Motors Co.’s corporate credit rating was raised two levels to BB+, the highest non- investment grade, from BB- by Standard & Poor’s Ratings Services, which cited the company’s new four-year U.S. labor accord. S&P may also raise Ford Motor Co.’s debt ratings.

S&P’s boost for Detroit-based GM two years after its U.S.- backed bankruptcy puts it two levels above rival Ford’s BB- corporate credit rating. S&P may raise Ford to BB+, depending on the outcome of its United Auto Workers talks, the ratings company said. The Dearborn, Michigan-based maker of Fusion sedans and F-Series pickups is now negotiating with the union.

GM’s contract with the UAW “will allow for continued profitability and cash generation in North America,” S&P said. GM reached an agreement with the UAW for a new labor deal on Sept. 16, which union members ratified. Labor costs will rise 1 percent a year, which is the smallest increase in a GM contract in four decades, the company said yesterday.

“It really is a new GM with a much lower break-even point and a different management team,” David Whiston, a Morningstar Inc. equity analyst, said in a telephone interview. “Both GM and Ford are due for an upgrade. Their balance sheets are going in the right direction for investment grade.”

GM’s global automotive operations will generate positive free cash flow of “at least $5 billion annually for the next few years, excluding voluntary pension contributions,” the ratings company predicted in the report.

The company said yesterday it can break even with annual U.S. industrywide light-vehicle sales of 10.5 million.

‘Fortress Balance Sheet’

“We are pleased that S&P has recognized the progress we are making,” GM Chief Financial Officer Dan Ammann said in a statement. “Our fortress balance sheet and low breakeven point are helping us succeed even in uncertain economic times, so we can stay focused on building great products and driving profitable growth around the world.”

Moody’s Investors Service is reviewing GM’s credit rating for a possible upgrade, the New York-based company said in a Sept. 22 statement. Moody’s cited the then-pending resolution of GM’s new contract, which it viewed as “constructive” and capable of preserving the automaker’s competitiveness, Bruce Clark, an analyst for the ratings company, said in a phone interview.

GM rose 35 cents, or 1.7 percent to $20.76 at 4 p.m. in New York Stock Exchange composite trading. Ford gained 7 cents to $10.

Ford-UAW Talks

S&P expects to assign Ford a BB+ rating if the company’s “U.S. labor negotiations are resolved and ratified” and if the automaker isn’t placed “at a significant disadvantage” to GM, the ratings company said in a separate statement.

“We continue to make great progress on our plan, and we are pleased with this positive step,” Todd Nissen, a company spokesman, said in an e-mailed statement. “Ultimately, the credit rating agencies determine when we return to investment grade. Our job is to stay focused on making progress on our plan.”

The UAW may reach an agreement this week on a contract covering Ford’s 41,000 workers, Joel Goddard, co-chairman of the UAW’s bargaining committee said in a recorded message Sept. 26.

Ford is discussing adding as many as 10,000 jobs in the U.S. in the UAW talks, according to three people familiar with the talks. As many as 4,000 of those jobs may come from Ford shifting production of the Fusion midsize sedan to the U.S. from Mexico, one of the people said.

Ford expects to resume paying a dividend in the “relatively near future,” Controller Bob Shanks said at the Citi Global Industrials Conference in Boston on Sept. 21. The company doesn’t need “to be investment grade before resuming our dividends,” Nissen said in an e-mailed statement after Shanks’s presentation.

--With assistance from Craig Trudell and Keith Naughton in Southfield, Michigan and John Lippert in Chicago. Editors: Bill Koenig, Jamie Butters

To contact the reporter on this story: David Welch in Southfield, Michigan at dwelch12@bloomberg.net

To contact the editor responsible for this story: Bill Koenig at wkoenig@bloomberg.net


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