---

DCR Lowers General Motors Commercial Paper To 'D-1'

15 July 1998

DCR Lowers General Motors Commercial Paper To 'D-1'

    CHICAGO, July 15 -- Duff & Phelps Credit Rating Co. (DCR)
has lowered the short-term debt rating of General Motors Corporation
$1 billion commercial paper program  from 'D-1+' (D-One-Plus) to 'D-1'
(D-One) due to the financial impact of the labor strikes that have shutdown
most of its North American automotive operations.
    DCR is maintaining its other current ratings for General Motors at this
time, including GM's long-term debt rating of 'A-' (Single-A-Minus) and
its preference stocks rating of 'BBB+' (Triple-B-Plus), as well as the
current ratings for General Motors Acceptance Corp. (GMAC), whose
commercial paper is rated 'D-1' (D-One) and long-term debt is rated 'A-'
(Single-A-Minus).
    The previous 'D-1+' (D-One-Plus) rating on parent GM's commercial paper
recognized the outstanding liquidity offered by GM's very large cash balance
($13.6 billion at March 31, 1998), moderate short-term debt levels and strong
free cash flow.  The strike-related shutdown has contributed to a sharp
decline in GM's latest reported cash balance ($9.1 billion at June 30, 1998)
and had a significant impact on net income (a hit of $1.2 billion in the month
of June, 1998) and corresponding operating cash generation.  With the chance
of returning to full production in July dwindling and a further run-off of
payables expected at month-end (as GM pays supplier invoices for June
production prior to the shutdown) that will decrease cash, the previous rating
is no longer appropriate.
    GM still has considerable liquidity supporting the new 'D-1' short-term
rating, even if the strikes last into August.  Besides the remaining
substantial cash expected at July month-end, GM has the flexibility to
draw upon much of the $4.5 billion of recent contributions to VEBA trusts
before it elects to utilize other options such as increasing its borrowings.
Once the one-time cash impact of the payables run-off in working capital is
completed in July, the pace of cash drain in North America should drop
considerably to a level consisting mainly of salaried workforce costs, minimal
plant overhead and warranty claims, along with a possibly reduced rate of
capital spending.
    If the strikes continue past mid-August, DCR anticipates reviewing all
of its GM-related ratings, even though DCR currently believes that the
GMAC ratings are more insulated from the impact of a longer strike-related
shutdown than the ratings of parent GM.