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DCR Assigns 'A-' to General Motors' Yen-denominated Global Notes

12 November 1999

DCR Assigns 'A-' to General Motors' Yen-denominated Global Notes

    CHICAGO, Nov. 12 -- Duff & Phelps Credit Rating Co. (DCR) has
assigned a 'A-' (Single A-Minus) debt rating to General Motors Corporation's
newly issued 50 billion Yen of five-year, fixed 1.25 percent global notes.
    This rating reflects the global notes as general, unsecured obligations of
General Motors, the U.S.-based automaker.  DCR does not view the new issue,
which currently would be the equivalent of $476 million, as a change in GM's
average debt levels or financial leverage, since GM has nearly $800 million of
term debt maturities in 2000 and GM's short-term debt was nearly $700 million
on September 30, 1999.  The new issue also will fit within GM's overall
financial strategy as a currency translation hedge for GM's significant equity
investments (totaling 115 billion Yen at current market values) in Japan-based
affiliates Isuzu Motors and Suzuki Motors.
    The rating outlook for GM is positive.  In core North American operations,
GM's new products and other initiatives have begun to stabilize its market
share at roughly 30 percent after fifteen years of secular decline.  This is a
key rating factor, for while new labor contracts significantly increase wage
and benefit rates over the next four years, GM should still be able to
continue to utilize the high attrition rate in its relatively older work force
to lower headcount.
    If GM holds market share, it may finally achieve staffing levels that
match its market position.  Other types of cost reductions, such as material
purchasing and manufacturing expense savings, have helped GM to narrow a
profitability gap versus major competitors and should continue to be
significant.
    After many years of very strong performance, GM's international operations
have provided negligible free operating cash flow for the last three years due
to weak operating performance along with increased capital investment. GM
Europe, by far GM's largest international operation, should regain some of the
market share loss (GM's share of Western Europe dropped from 12.4 percent in
1995 to 10.7 percent in 1998) and cost reductions have bolstered
profitability, but the pricing environment continues to deteriorate due to
intense competition and excess capacity.  Latin American operations continue
to struggle because of the steep market declines from the region's continuing
economic crisis, but GM's profitability continues to outshine major
competitors and GM has recently been gaining share in important markets.
Finally, GM's pace of investment has slowed, particularly in emerging markets.
    GM has moderate debt levels and very good liquidity, as automotive
operations had debt of $7 billion and cash and equivalents of $13 billion on
September 30, 1999.  However, non-pension retirement benefit liabilities are
very large ($38 billion) and constrain the amount that better operating
performance can improve the debt ratings.
    GM also owns a very significant asset in Hughes Electronics, a
fast-growing telecommunications and space satellite company.  However, there
are currently no significant product sales or ongoing capital flows between GM
and Hughes, GM does not guarantee Hughes' $2 billion of debt, and upon
divestiture GM has typically spun the majority of non core operations off to
shareholders.  Therefore, DCR believes that Hughes Electronics can have only a
minor impact on GM's debt rating near term.
    DCR is a leading global rating agency with 33 local market offices
providing ratings and research on debt issues and insurance claims paying
ability in more than 50 countries.  For additional research, visit DCR's Web
site at http://www.dcrco.com.