S&P Doesn't Give GM Much Credit
Standard and Poor's believes in giving credit where credit's due. General Motors doesn't qualify. According to the Detroit News, S&P has removed GM from its list of companies in line for a credit rating upgrade. The agency has decided that loaning money to the ailing automaker remains a risky venture, even with a new labor contract that GM says will save them billions of dollars. S&P still sees "serious challenges ahead" for the beleaguered company. ""We had to look at the economy and non-contract issues," demurred Analyst Bob Schultz. "Still, the most important factor is if they're using or generating cash. We still expect GM to be using cash in their North American operations." Schultz predicts weak U.S. auto sales will keep GM burning through its reserves, as it continues spending on restructuring without a significant increase in revenues. Even if GM's products suddenly find favor in the American markeplace, it's unlikely that S&P will upgrade GM for another six months to two years.
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I am slightly surprised as to why S&P aren't giving GM more credit (literally). The future looks a lot more rosy than it did a year ago. They got the concessions they wanted from the UAW, their sales are rising and their quality and reliability is improving (depending on whose figures you believe). I've been a big critic of GM but fair's fair....?
I don't know if it's so unfair. I think they have made a good marketing campaign and been working the PR really hard, but that the sales will continue to retreat over the long haul. The problem with all the talk about how great the next gen cars will be is that more people have incentive to wait for the next gen cars. What do you sell in the meantime?
If GM's losing money on every car they sell, then it certainly makes sense to cut their credit rating as sales increase.