GM and Ford Face Extraordinary Challenges In 2006, Says S&P Report
09 März 2006 - 9:04PM
PR Newswire (US)
NEW YORK, March 9 /PRNewswire/ -- Automakers General Motors Corp.
and Ford Motor Co. will face unprecedented financial and
operational challenges in 2006 as they fight to turn around their
ailing performance in the critical North American market. The two
giant automakers will continue to face the same triple threat that
produced poor results in 2005: excess capacity, high legacy costs,
and changing customer preferences, as evidenced by the declining
sales of higher-profit SUVs. And, while both companies grapple with
those problems, they will be preparing for what seems likely to be
tough bargaining with the United Auto Workers (UAW), whose labor
contract with the automakers ends in 2007. Both companies currently
have substantial liquidity but also prospective calls on that
liquidity. Standard & Poor's believes that if they cannot
reverse the negative trends that have buffeted them, General Motors
could ultimately have to restructure its debt and contractual
obligations, while a somewhat healthier Ford could suffer from the
price actions of its competitors. These are some of the conclusions
detailed in a recently published special report, "GM And Ford Need
Traction On North American Turnaround in 2006." The article is part
of a collection of reports on the global automotive industry that
will be the cover story of Standard & Poor's March 13, 2006,
CreditWeek, the investment research leader's weekly magazine on
credit risk. (CreditWeek asked six senior Standard & Poor's
economists and credit and equity analysts to look at the global
automotive industry, focusing on conditions in the U.S., Europe,
and Asia from a range of perspectives, including manufacturers,
lenders, and consumers.) "These turnarounds will be difficult and
time is short," said Standard & Poor's credit analyst Robert
Schulz, author of the report. "Both Ford and GM have already begun
broad multiyear restructurings to cut costs. Those efforts will be
critical in further evaluating both credits." "The degree of
success Ford and GM achieve with their new products and the
restructurings that they have already announced will determine
their cash generation levels and be a key factor for us in their
rating," said Mr. Schulz. Even now, GM and Ford must be considering
the implications of the labor negotiations. These contract
negotiations will have to address many of the changes and cost
savings already announced by the automakers. We expect the
negotiations to be difficult. While it is impossible to foresee the
state of the industry 18 months hence, so much is at stake for both
labor and management in these talks that we would not be surprised
to see some sort of work stoppage at one of the automakers.
Clearly, neither company nor the UAW is likely to prefer that
outcome. As such, Standard & Poor's, while cognizant of the
possibility of a strike, does not incorporate such a negative event
into our current GM or Ford ratings. Copies of CreditWeek's special
report on the auto industry are available to subscribers of
RatingsDirect, Standard & Poor's Web-based credit research and
analysis system, at http://www.ratingsdirect.com/ . In addition,
articles and video clips of interviews with their authors will be
available as of Monday, March 13, 2006, at
http://www.standardandpoors.com/ . Standard & Poor's will hold
a telephone conference call on Tuesday, March 14, 2006, 11:00 a.m.
U.S. Eastern Time, to examine issues confronting the global auto
manufacturing industry. Among questions to be answered are, "How
bad are the Detroit-based automakers' problems; at what point might
U.S. auto company market share stop declining; is Japan the only
real non-U.S. competitor; what opportunities and challenges do
Europe and Asia offer; and can disillusioned customers ever be
regained?" Speakers participating in this teleconference include
Standard & Poor's automotive equity analyst Efraim Levy,
automotive credit analyst Robert Schulz, Standard & Poor's
economists, David Wyss and Jean-Michel Six, and J.D. Power chief
economist, Robert Schnorbus. Like Standard & Poor's, J.D. Power
& Associates, is a division of The McGraw-Hill Cos. Call-in
information for this March 14 teleconference appears below. The
teleconference coincides with the publication of the special report
on the automobile industry in Standard & Poor's CreditWeek, its
weekly publication on credit risk. After prepared remarks, team
members will be available to answer your questions. Please note
that Standard & Poor's offers all of its broadcast
teleconference calls to all interested participants on a
complimentary basis. The call will begin promptly at the time
indicated. Please call at least 15 minutes before the scheduled
start of the call to complete the pre-call registration process.
Live Dial-in Numbers: U.S./All Others: 1-484-630-6253 U.K.:
44-20-7943-5370 Conference ID# 7373584 Passcode: SANDP Replays:
Recorded replays of the call are made available about an hour after
the call concludes and are available until Tuesday, March 21, 2006.
Replay number: 1-402-220-9780. RealAudio: The call will also be
available live in "listen-only" mode at
http://www.events.standardandpoors.com/ for listeners with the Real
Player software, sound card, and speakers. The RealAudio playback
is available until Tuesday, April 11, 2006. If you have any
questions about the conference call, please e-mail: . The report is
available to subscribers of RatingsDirect, Standard & Poor's
Web-based credit research and analysis system, at
http://www.ratingsdirect.com/. If you are not a RatingsDirect
subscriber, you may purchase a copy of the report by calling (1)
212-438-9823 or sending an e-mail to . Ratings information can also
be found on Standard & Poor's public Web site at
http://www.standardandpoors.com/ ; under Credit Ratings in the left
navigation bar, select Find a Rating, then Credit Ratings Search.
All Standard & Poor's research information is accessible for 24
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representative provided. About Standard & Poor's Standard &
Poor's, a division of The McGraw-Hill Companies (MHP), is the
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information, visit http://www.standardandpoors.com/. DATASOURCE:
Standard & Poor's CONTACT: Media Contact: John Piecuch, New
York (1) 212-438-1102; Analyst Contact: Robert Schulz, CFA, New
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