UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Date of report (Date of Earliest Event Reported: (10-18-2001)
GENERAL MOTORS ACCEPTANCE CORPORATION
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(Exact name of registrant specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
1-3754 38-0572512
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(Commission File No.) (I.R.S. Employer Identification No.)
200 Renaissance Center, Detroit, Michigan 48265-2000
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313-665-6266
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(Registrant's telephone number, including area code)
ITEM 5. OTHER EVENTS
FITCH DOWNGRADES DEBT OF GM AND GMAC
On October 18, 2001, Fitch downgraded the senior unsecured debt of General
Motors Corporation (GM) and its financial services subsidiary, General Motors
Acceptance Corporation (GMAC) to `A-' from `A' and the corresponding commercial
paper ratings to `F2' from `F1'. Fitch has removed the Rating Watch Negative and
revised the Rating Outlook to Negative.
Fitch stated the downgrades reflect the long-term erosion in GM's
competitive position compounded by the recent acceleration in price competition.
Fitch said although market share for the "Big Three" has been gradually
decreasing for years, incentive spending has picked up markedly during 2001 as
industry sales are coming off of a peak in 2000. Fitch also stated that the
increased competition has been most manifest in pricing, with incentive spending
by the "Big Three" greatly outpacing the primary foreign brands. In addition,
Fitch thought the increased competition, particularly in the light truck segment
where GM has been deriving much of its profits, has negatively impacted GM's
profitability.
In addition, Fitch stated that GM's North American car operations have
struggled to achieve adequate returns even through the cyclical upswing.
According to Fitch, intense competition from foreign brands, structural cost
disadvantages, complex branding strategy, and weak consumer acceptance have
contributed to uncertainty regarding GM's long term competitive position in the
North American car market.
Also, Fitch said offsetting these declining trends in GM's North American
operations has been several successful product programs in various light truck
categories. Fitch further stated these new product programs have helped GM stem
its share erosion in the light truck segment and even gain share in certain high
margin sub-categories.
Further, Fitch explained that outside of North America, Europe continues to
be a drain on GM's global operations. Fitch believes the European market faces
persistent over-capacity and GM's competitive position has weakened. Fitch does
not expect GM's European operation will be a positive cash contributor for the
next year or two.
Fitch feels the Negative Rating Outlook reflects the risk that the keenly
competitive pricing environment in North America will continue unabated into
2002 and meaningfully impact the financial conditions of GM even as it maintains
share in a declining market. In addition, Fitch sees that significant
over-capacity in the U.S. market, augmented by weak market conditions and
continuing capacity expansion by transplants, is likely to result in the `Big
Three' being forced to bear the brunt of production cutbacks as the industry
`right-sizes' capacity. Also, Fitch believes high cost structures and existing
labor contracts at the `Big Three' are likely to make this process difficult and
costly. According to Fitch, the potential for continuing losses in its
international operations is also factored into the Rating Outlook.
Furthermore, Fitch stated GM's liquidity is afforded through $8.1 billion
of cash for automotive operations (excluding Hughes) and $3 billion of
short-term VEBA trust funding at June 30, 2001. Fitch believes unused bank lines
in excess of $5 billion also provide liquidity. In addition, Fitch says GM has
the added flexibility of monetizing its interest in Hughes and retaining it as
an additional source of liquidity. According to Fitch, while pension funding and
OPEB obligations remain a key long term risk factor, GM's recent share
contributions and WEBA assets provides them with the flexibility of not
contributing cash for the next few years. Additionally, Fitch said significant
"legacy liabilities' (related to closed or divested plants) burden GM relative
to its competitors.
Fitch expects that current industry dynamics could restrict GM's financial
flexibility through the next few years. However, they also believe over the
intermediate term, GM's scale, liquidity, product development, distribution
network, production capacity, and access to capital position the company to
weather the difficult market conditions expected as the industry `right sizes'
capacity. Fitch said the ability to manage structural costs and achieve adequate
returns on capital will remain a significant issue over the longer term.
Fitch also stated the ratings of GMAC are driven off of the ratings of the
parent company. According to Fitch, as a captive auto finance company, GMAC
helps to facilitate the sale of GM cars and trucks on a worldwide basis. Fitch
further said they believe the performance of the auto finance unit has remained
rather stable, although they have been concerned that margins in this business
remain under pressure compared to several years ago. Going forward, Fitch
anticipates that GMAC will remain a vital part of the GM organization, although
margins are likely to remain under pressure as a result of lower ratings and a
shift in the funding profile towards more term borrowings, as well as
securitization. Fitch also believes returns are likely to be impacted by
somewhat higher loss rates as a result of a decline in asset quality, reflective
of a weaker economic environment and continued declining residual values on
leased automobiles.
Moreover, Fitch believes GMAC also continues to maintain an extensive
mortgage banking operation. Fitch stated reported earnings in this business have
been good so far in 2001, however, earnings in this business can be volatile,
and could be pressured somewhat in the future if the economy weakens further.
Fitch requires significant capital to be maintained against the residual assets
that are generated in the mortgage banking operation, primarily capitalized
mortgage servicing rights and interest-only securities. Fitch further believes
these assets potentially drain financial resources, funding and equity, away
from the core financing operation.
RATINGS DOWNGRADED
General Motors Corporation From To
- Senior debt A A-
- Commercial paper F1 F2
General Motors Acceptance Corporation
- Senior debt A A-
- Commercial Paper F1 F2
- Euro commercial paper F1 F2
General Motors Acceptance Corporation of Canada, Ltd.
GMAC, Australia (Finance) Ltd.
General Motors Acceptance Corporation (U.K.) plc
GMAC International Finance B.V.
Open Bank GmbH
- Senior debt A A-
- Euro medium-term notes A A1
- Short-term debt F1 F2
- Euro commercial paper F1 F2
GMAC Commercial Mortgage Bank, (Ireland), plc
- Euro commercial paper F1 F2
- Short-term certificates of deposit F1 F2
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf the
undersigned hereunto duly authorized.
GENERAL MOTORS ACCEPTANCE CORPORATION
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(Registrant)
Dated: October 22, 2001 By s/ GERALD E. GROSS
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(Gerald E. Gross, Controller)