GM and Ford Face Extraordinary Challenges In 2006, Says S&P Report

NEW YORK - March 10, 2006: Automakers General Motors Corp. and Ford Motor Co. will face unprecedented financial and operational challenges in 2006 as they fight to turn around their ailing performance in the critical North American market. The two giant automakers will continue to face the same triple threat that produced poor results in 2005: excess capacity, high legacy costs, and changing customer preferences, as evidenced by the declining sales of higher-profit SUVs. And, while both companies grapple with those problems, they will be preparing for what seems likely to be tough bargaining with the United Auto Workers (UAW), whose labor contract with the automakers ends in 2007.

Both companies currently have substantial liquidity but also prospective calls on that liquidity. Standard & Poor's believes that if they cannot reverse the negative trends that have buffeted them, General Motors could ultimately have to restructure its debt and contractual obligations, while a somewhat healthier Ford could suffer from the price actions of its competitors.

These are some of the conclusions detailed in a recently published special report, "GM And Ford Need Traction On North American Turnaround in 2006." The article is part of a collection of reports on the global automotive industry that will be the cover story of Standard & Poor's March 13, 2006, CreditWeek, the investment research leader's weekly magazine on credit risk. (CreditWeek asked six senior Standard & Poor's economists and credit and equity analysts to look at the global automotive industry, focusing on conditions in the U.S., Europe, and Asia from a range of perspectives, including manufacturers, lenders, and consumers.)

"These turnarounds will be difficult and time is short," said Standard & Poor's credit analyst Robert Schulz, author of the report. "Both Ford and GM have already begun broad multiyear restructurings to cut costs. Those efforts will be critical in further evaluating both credits."

"The degree of success Ford and GM achieve with their new products and the restructurings that they have already announced will determine their cash generation levels and be a key factor for us in their rating," said Mr. Schulz.

Even now, GM and Ford must be considering the implications of the labor negotiations. These contract negotiations will have to address many of the changes and cost savings already announced by the automakers. We expect the negotiations to be difficult. While it is impossible to foresee the state of the industry 18 months hence, so much is at stake for both labor and management in these talks that we would not be surprised to see some sort of work stoppage at one of the automakers. Clearly, neither company nor the UAW is likely to prefer that outcome. As such, Standard & Poor's, while cognizant of the possibility of a strike, does not incorporate such a negative event into our current GM or Ford ratings.

Copies of CreditWeek's special report on the auto industry are available to subscribers of RatingsDirect, Standard & Poor's Web-based credit research and analysis system, at www.ratingsdirect.com. In addition, articles and video clips of interviews with their authors will be available as of Monday, March 13, 2006, at www.standardandpoors.com .

Standard & Poor's will hold a telephone conference call on Tuesday, March 14, 2006, 11:00 a.m. U.S. Eastern Time, to examine issues confronting the global auto manufacturing industry. Among questions to be answered are, "How bad are the Detroit-based automakers' problems; at what point might U.S. auto company market share stop declining; is Japan the only real non-U.S. competitor; what opportunities and challenges do Europe and Asia offer; and can disillusioned customers ever be regained?" Speakers participating in this teleconference include Standard & Poor's automotive equity analyst Efraim Levy, automotive credit analyst Robert Schulz, Standard & Poor's economists, David Wyss and Jean-Michel Six, and J.D. Power chief economist, Robert Schnorbus. Like Standard & Poor's, J.D. Power & Associates, is a division of The McGraw-Hill Cos. Call-in information for this March 14 teleconference appears below. The teleconference coincides with the publication of the special report on the automobile industry in Standard & Poor's CreditWeek, its weekly publication on credit risk. After prepared remarks, team members will be available to answer your questions.

RealAudio: The call will also be available live in "listen-only" mode at http://www.events.standardandpoors.com for listeners with the Real Player software, sound card, and speakers. The RealAudio playback is available until Tuesday, April 11, 2006.