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GM, GMAC Ratings Affirmed By Fitch IBCA On Delphi Separation

4 August 1998

GM, GMAC Ratings Affirmed By Fitch IBCA On Delphi Separation - Fitch Financial -

    NEW YORK, Aug. 4 -- Fitch IBCA affirms General Motors Corp.'s
(GM) 'A' senior debt, 'A-' preference share, and 'F1' commercial paper
ratings.  Those same ratings are also affirmed for General Motors Acceptance
Corp.'s (GMAC) securities.  At June 30, 1998, GM's total automotive debt was
$9.1 billion, including commercial paper (CP); GMAC had $88 billion of senior
debt, including CP.
    The affirmation follows Fitch IBCA's initial assessment of the potential
benefits and costs to GM arising from the proposed spinoff of Delphi
Automotive Systems and the settlement of the recent 54-day strike, which ended
on July 29, 1998.  The affirmation also reflects Fitch IBCA's expectation
that, with an interval of labor stability and sourcing flexibility, GM will
regain its cost reduction and new product momentum.  Delphi, the world's
largest auto parts maker, will be positioned to compete effectively for non-GM
business.  For its part, GM will, over time, have the flexibility to choose
among competitive suppliers as new vehicle rollouts present opportunities for
savings.  Delphi will also be able to negotiate separately with the UAW when
the current labor agreement expires in September 1999.  Although GM could
receive cash from the Delphi separation, it is not clear what liabilities will
be transferred to the new company.  Finally, the absence of Delphi will remove
a growing earnings stream, which GM must replace with a combination of more
profitable vehicles and continued cost takeouts.
    In settling the recent strike, GM is assured labor stability at least
through the expiration of the current UAW contract in September 1999, and
retains its flexibility to outsource.  However, the virtual shutdown of GM's
North American operations cost an estimated $2.5 billion after tax in lost
production, and eroded the company's cash reserves.  Although cash flows
should resume as production is restored, Fitch IBCA considers it prudent
that GM will restore cash to its $13 billion target before resuming share
repurchases.
    The ratings continue to reflect the company's underlying strong cash
generation, supported by tangible progress in reducing structural costs,
resulting in reasonable debt leverage and credit protection.  Despite a
$1.18 billion net income strike penalty through June 30, GM still had EBITDA
interest coverage of 7.5 times (x) for the 12 months ended June 30, 1998;
debt/EBITDA was a reasonable 1.08x, and the company exited the quarter with
cash and equivalents of $9.1 billion.  These measures are consistent with the
current ratings, but less than the company achieved in recent years.
    Ongoing concerns center around continued weakness in GM's U.S. market
shares, which the company has recently supported through enriched sales
incentives.  GM also needs to improve its margins to achieve its goal of 5%
return on sales, and restore its competitiveness with attractive new products
and further cost takeouts, for which the 1998 target is $4 billion.