By on October 7, 2010

Bloomberg reports that the credit rating firm Fitch Ratings has given GM a BB- credit default rating, the same as Ford Motor Credit. The difference: Ford has over $20b in debt, while GM is sitting on less debt and more cash. So why the identical rating? Fitch’s Stephen Brown explains:

Although they have similar ratings, you sort of get to them from different paths. GM doesn’t have a whole lot of debt, but they have very large pension obligations. Ford’s pension obligations are significant, but they’re lower than GM’s by quite a bit. But Ford has a lot of debt.

At the end of the first half of 2010, GM had $32b in cash and $8b in debt, while Ford had $22b in cash and $27b in debt. GM’s pensions, on the other had, are underfunded to the tune of $27b, while Ford’s are underfunded by $6.1b. Analysts have consistently suggested that GM’s IPO valuation should be in the neighborhood of Ford’s $40b market cap, and an identical credit rating seems to confirm the wisdom (or at least the popularity) of the comparison. Unfortunately, a $40b GM valuation would fail TTAC’s last standard for even marginal bailout “success.” After all, if GM is worth less than the $50b taxpayers put into it, there’s going to be no chance of spinning the IPO as a success.

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14 Comments on “GM Gets The Same Credit Rating As Ford. Similar Market Cap Valuation Coming?...”

  • avatar

    all else equal, Ford is by far superior in management, no Government Motors stain, without the hatred from wind down dealers, empty handed stockholders, and pensioners with bad posture from being bent over.

    personally I await the GM stock offering. savvy investors will short it as soon as market makers are ready.

    • 0 avatar

      You are look it to much from an American viewpoint. Being owned by the US government isn’t that big of a deal in the eyes of the European and Chinese consumer.

  • avatar

    Can’t those firms have the equivalent of a garage sale and use the proceeds to pay down some of that debt?
    Perhaps no more dining out on the corporate dime for the “privileged ones” until the debt is gone?
    Meters in the parking lot?
    Lower office thermostats with a fee for any temp. above 60 degrees?
    Gum dispensers with quarter gumballs and proceeds used just for debt pay-off (minus the cost of refilling with cheap made-in-Lagos gumballs).
    And a whole bunch of other methods to amass dollars to sate those owed money.

  • avatar

    That doesn’t make any sense.  GM’s balance sheet only looks good because they went bankrupt, and their cash balance is not an accurate reflection of the health of their company.  If I declared bankruptcy and washed the slate clean, I’m sure my credit wouldn’t improve as a result.  History figures very heavily into my credit score.  How is this not the case for GM?

    • 0 avatar

      Perhaps the answer is that neither Ford nor GM has a credit rating worth bragging about. They are both into junk bond territory, as well they should be. For different reasons. Ford because of its staggering debt load. GM because of its bankruptcy.
      Nor would I equate credit rating with market capitalization. Credit rating measures something quite different from stock value. No reason to think that Ford and GM should have the same market capitalization simply because they share the same credit rating.

      UPDATE: Reading the article more carefully, I see your point. The Fitch analyst mentions GM’s unfunded pension obligations as the reason for its low credit rating. He says nothing about the bankruptcy. I agree with you — it seems like a recent bankruptcy would, and should, ruin a company’s credit rating just like it does for a person.

    • 0 avatar

      What auto manufacturer is not in horrible shape?

      I guess I am still bothered that one company can go bankrupt, wash itself clean of all debt and bargaining agreements, while its competition can’t.

      I still can’t understand why the UAW wasn’t forced to allow Ford the same deal.
      This seems kind of unlawful.

  • avatar

    “After all, if GM is worth less than the $50b taxpayers put into it, there’s going to be no chance of spinning the IPO as a success.”

    I didn’t think anyone seriously considered that the success or failure of the GM bailout was to be measured by profits from the IPO as opposed to just keeping the lights on in a huge section of the American economy.

    • 0 avatar

      “I didn’t think anyone seriously considered that the success or failure of the GM bailout was to be measured by profits from the IPO”

      The ones saying this the most are those in favor of the GM bailout. I hear it all the time. That not only did the bailout save jobs, but taxpayers will get their money back.

  • avatar

    I don’t see how the credit rating equals market cap.  You can probably find several companies with vastly different credit ratings with similar market caps and ones with the same rating with different market caps.
    GM should and likely will have a larger market cap than Ford because of how GM is working so well in growth countries.  I don’t know what it will be, but 40 billion would be a joke.

  • avatar

    GM didn’t go through a real bankruptcy in my opinion. Nobody in their right mind would have dumped a nickel into GM. It was / is worthless. Has been for years. The $50B just bought time.

    They will continue to chew through that and when the bank account is empty they will be right back where they were pre-bankruptcy. The key is for them to raise some cash to defer the liquidation as long as possible. Eventually US interest rates will rise (can’t go lower than zero) the new car market will be crushed.

    Good luck finding folks with kick butt credit scores willing to borrow $35K at 12% to buy a GM..

    Once the cost rises significantly due to financing, people will get very picky about what they buy.

  • avatar

    Fitch was one of the ratings agencies responsible for the mortgage meltdown. They rated toxic mortgage pass-throughs AAA because they were well paid to do so. Whatever rating GM got means absolutely nothing from one of the whore rating agencies.

    • 0 avatar

      Thanks MikeAR,
      The ratings agencies have been meaningless for years – except as a sales tool for selling crap to, well, tools.
      As long as ratings are paid for by the recipient (and benefactor) of the rating, only the most naive would think for a second that the ratings were impartial.  Ratings agencies are no more trustworthy than the big3 CPA firm that somehow came out validating Enron’s books despite the fact that anyone who bothered to read their filings knew the books were cooked.
      ratings are merely a product that is purchased, as such, caveat emptor.

  • avatar

    After all, if GM is worth less than the $50b taxpayers put into it, there’s going to be no chance of spinning the IPO as a success.

    I’m not so sure about that.  $40B is 80% of $50B, and that means the taxpayer lost only 20%, but kept all those jobs going.  To the supporters of the bailout (I not being one of them), this counts as success, and it’s actually defendable.

    • 0 avatar

      Worthwhile to keep some American mittleklasse manufacturing jobs? You bet…

      In the end it amounts to squat as the top 1% defines what is valid and (sadly) the 99% below them enthusiastically agrees on the pathetically vain hope that they will someday be part of that 1%…

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