GM Gets The Same Credit Rating As Ford. Similar Market Cap Valuation Coming?

Edward Niedermeyer
by Edward Niedermeyer
gm gets the same credit rating as ford similar market cap valuation coming

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.

Join the conversation
6 of 14 comments
  • Steven02 Steven02 on Oct 07, 2010

    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.

  • Lw Lw on Oct 07, 2010

    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.

  • MikeAR MikeAR on Oct 07, 2010

    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.

    • Porschespeed Porschespeed on Oct 08, 2010

      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.

  • SCE to AUX SCE to AUX on Oct 08, 2010
    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.

    • Porschespeed Porschespeed on Oct 09, 2010

      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%...