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Moody's gives negative outlook to GM and GMAC


Moody's Investors Service has changed the outlook of both General Motors and its financing arm, GMAC, to negative from stable. The change in outlook follows the announcement that GM has agreed to pay Fiat, the Italian-based car manufacturer, €1.55 billion ($2 billion) to terminate the Master Agreement between the companies and to realign its industrial relationships.

Although the €1.55 billion payment does not represent a significant erosion in GM's automotive liquidity position of $23 billion, says Moody’s, this outflow comes as the company is facing increasing challenges in its competitive and operating environment. These challenges include the continued erosion in its north American market share position (26.2% for January 2005), still-high domestic inventory levels, elevated shipments to the daily rental segment, US incentive levels that remain elevated, and more negative prospects for the company's burdensome health care costs.

The negative outlook reflects Moody's view that this more stressful environment, in combination with the €1.55 billion Fiat transaction, will result in credit metrics that remain weak for the Baa2 level through 2006.

Moody's change of GMAC's outlook to negative reflects the significant business ties between GM and GMAC that influence GMAC's origination volumes, asset mix, and asset quality.

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