As the global coronavirus pandemic continues to wreak havoc around the world, S&P Global Ratings has placed GM credit on watch. The financial services firm stated that there is a 50 percent chance that it will downgrade the automaker’s credit rating by one rung if GM facilities “remain idle for longer than we expect, causing its cash flow generation to turn negative, eroding its liquidity and increasing its debt leverage with no signs of an imminent improvement.” Meanwhile, Moody’s – another organization that specializes in financial credit ratings – also said it was considering cutting GM credit to junk status.
“A severe disruption in automotive demand due to the coronavirus, combined with the possibility of a follow-on economic recession, will place considerable pressure on GM’s cash flow and credit metrics,” Moody’s said in a statement.
General Motors isn’t the only automaker in danger of having its credit rating slashed. In fact, GM’s cross-town rival, the Ford Motor Company, already saw its credit rating downgraded to junk rating (BB+) by Moody’s at the end of March, and could see further cuts. It’s the second time in six months that Ford saw its credit rating downgraded as it faces restructuring issues that have yet to show tangible results. The coronavirus outbreak is just the latest to put even more pressure on the FoMoCo.
For its part, GM drew down $16 billion in available credit on March 24th, which will join the automaker’s then-current $15-16 billion in cash reserves. In a press release, The General described the move as a proactive measure to “fortify its balance sheet” while improving its “cash position and preserve financial flexibility in light of current uncertainty in global markets resulting from the COVID-19 pandemic.”
The ongoing COVID-19 pandemic continues to shock the global auto industry, as production has ceased globally and demand has diminished significantly. GM plants in the United States, Canada, Mexico, Brazil and in other areas of the globe has come to a halt, with no word on when plants will resume.
Idling all plants has very different repercussions for the financial health of an automaker as compared to going through an economic downturn, such as a recession. With zero production output, an OEM simply does not generate sufficient revenue to cover even minor costs. Meanwhile, the economy significantly weakens as other firms and businesses begin to lay off, furlough, or even dismiss workers, causing consumers to delay large purchases while also trimming discretionary spending. Automobiles are typically one of the very first items to see the impact of these spending cuts. As of late March, S&P expects the coronavirus pandemic to cut light vehicle sales by 15-20 percent in the U.S. and Europe as well as 8-10 percent in China.
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Comments
It would seem that if the fundamentals of not only GM but other “manufacturers” are sound this would be a temporary blip. That said interests rates are nearly zero so whether their rating changes or not, money is currently cheap. I will say grabbing the credit line was a smart move, one GM learned when Alan Mulally did it for Ford when he was CEO, keeping them from needing a bailout. Still a smart move but regardless, having $16B in cash reserves “ought” to allow the company to weather this easily.
Finally the company would be smart to start decertifying the corrupt UAW as they have done nothing but help bring the company to ruin. If Hyundai, Toyota, Honda, Chevrolet and Ford all build the exact same vehicle, Hyundai, Toyota and Honda can all do it cheaper and make more profits. American companies should enjoy the same benefit as transplants, here, in America. The new Mexico/Canada/USA trade deal helps with this in part but not fully.
so you support shipping jobs to mexico?
No Im quite the opposite and so glad that President Trump trashed NAFTA that Bill ClownStone signed and replaced it with the MexCA/USA agreement. No but in a globally competitive industry costs are critical and GM cuts costs by cutting value to customers whereas other companies can increase value because their costs are less. Simple Economics… the ones with the better products can have the better cash flow and have a leg up in the competition. The UAW cost GM billions on recent the strike whereas Honda, Nissan, Toyota, Hyundai, Mercedes, BMW, Subaru, VW, etc do not have to deal with that trash. It benefited no one…. and those companies employees are extremely happy such they REJECT the UAW… UAW is corrupt and unnecessary. There is ZERO reason to have a union in the 21st Century…
Eventually GM/Ford & FCA will have to move all production out of the US in order to overcome the cost problem. UAW jobs are likely a ticking clock and its only a matter of time before they go away… its simple global economics…
Xdud
Spoken like a true desk jockey.
You need to get out on the plant floor and see what it’s like to put in a days work of labor.
Another one of Mary Barry’s cluelessness cronies.
You’re an idiot and probably one of the “workers” on the take. You “gotta get whats coming to me before someone else gets whats coming to me” . You’d rather the company go out of business before you give up nickel. You’d prefer the taxpayers bail out GM again, but nooooo you’re not paying one more nickel… but “oh tax the rich!!!!” Union Rats are cowards… and the UAW is about power and money, not you.
Hey Junior,
Why don’t you stop with the insults. Learn the correct way to spell peoples names, and tone down the right wing rhetoric.
If you don’t, one day you’re going to piss off the wrong person, and they will knock that breast right out of your mouth.
You lefties really crack me up.
It’s ok for you to speak your ‘mind’ (that’s a funny thought in itself) but when someone disagrees with you, it hurts your feelings and you get mad.
Well looks like I’ve got a beating coming.
Old school
A republican that actually thinks about my feeling. How sweet. Almost wish I still had feelings.
I’m not going to beat you, but feed me enough alcohol and I may let you sk.my.dk.
You crack me up.
Gay Peter and xdud you should be the poster children for why there should have an intelligent test before people can vote.
Have a nice Easter.
Old school
I think you mean” intelligence test”
A party that doesn’t believe in science, won’t do well on an intelligence test.
You better hope I’m at least a little bit gay. If I’m not your going to be down there su-King a long time.
Old school
Thanks for the Happy Easter. Like all Greeks I’ll be celebrating next week.
Best wishes to you and family for the Easter Holiday. Stay healthy, Stay safe.
Old School – PiG and the others are cowards…
Xjug
Look at you junior. 2 days ago you were trying on skirts. Today you’re hiding behind them.
Your funny. If anyone would know anything about being an idiot, you would.
Like I said. You don’t have a clue.
BTW there is no union where I work and I’m not in the UAW.
Have a nice day.
Tell me what about what I said is incorrect? If you’re not UAW then perhaps you are or were white collar. Educate me… tell me where Im wrong?
Emotions are one thing but what I said is fact. Legacy costs destroyed GM once and its currently set up to repeat, its just a matter of time.
Think a few folks could use a “Snickers” Bar…
Sorry about the regression in nemo 3.4.3. We’ll get that fixed asap.
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