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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
April 29, 2004
(Date of report; date of
earliest event reported)
Commission file number: 1-3754
GENERAL MOTORS ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-0572512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Renaissance Center
P.O. Box 200 Detroit, Michigan
48265-2000
(Address of principal executive offices)
(Zip Code)
(313) 556-5000
(Registrant's telephone number, including area code)
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Item 5. Other Events
On April 29, 2004, Moody's Investors Service (Moody's) announced in a press
release that it affirmed its ratings for GM and GMAC. The press release issued
by Moody's follows:
New York, April 29, 2004 -- Moody's Investors Service affirmed the ratings of
General Motors Corporation (senior at Baa1 and short-term at Prime-2) and
General Motors Acceptance Corporation and its subsidiaries (senior at A3 and
short-term at Prime-2). The outlook remains negative.
The affirmation of the GM ratings reflects progress the company has made in
generating strong automotive cash from operations for 2003, its sizable
liquidity position, a competitive new product line up, the improving prospects
of its Asian operations, its increasingly efficient variable cost structure in
North America, the generation of over $5 billion in proceeds from the sale of GM
Defense and Hughes, and the company's ability to exceed the rating agency
expectations for earnings and cash flow during 2002 and 2003. In addition,
despite the likelihood that automotive free cash generation will decline from
the robust level of approximately $8 billion during 2003 (after capital
expenditures, working capital, and the payment of common dividends, but before
dividends from GMAC, asset sales, and pension contributions), it should still
remain solidly positive during 2004 and should approximate $4.0 billion. The
affirmation also reflects the benefits of the US economic recovery. If GM can
remain solidly on track to achieving its key intermediate-term objectives, it is
possible that the company could become more solidly positioned in the Baa1
rating category by some time in 2005. These objectives include: 1) building its
domestic car franchise; 2) strengthening its brand image in the US; 3)
stabilizing its market share in the North American, European and Asian regions;
4) restoring acceptable returns in Europe and growing its position in Asia; 5)
continuing to reduce structural costs by more than $500 million per year and
lowering material costs by about 3% annually; and 6) maintaining net earnings of
GMAC above $2.0 billion.
The affirmation of the GMAC ratings reflects Moody's opinion that the company
continues to have financial and operational characteristics consistent with its
rating level. The one notch rating differential with GM, which is more fully
explained in GMAC-related research, remains in place. GMAC's results have been
buoyed by its mortgage business, which produced record results in 2003. The auto
finance business has been less robust, as net interest margins have come under
pressure, and loss severity has been high. Positively, GMAC's auto finance
default frequency remained low throughout the latest cycle, confirming the
company's solid underwriting criteria. Additionally, GMAC's liquidity profile
remains strong given its access to the asset-backed securitization market for
its various asset classes.
The negative outlook reflects the intense competitive environment that GM faces
in its automotive markets. This environment is characterized by global
overcapacity, accelerated new-product programs by all competitors, and a
commitment by virtually all auto manufacturers to become a viable player in
every product and geographic segment of the industry. These competitive
challenges could contribute to severe and ongoing price discounting, and could
further pressure GM's earnings and share position. The company will also remain
vulnerable to other uncontrollable developments that could materially dampen its
financial results. These developments include the possible shift in consumer
preferences for smaller more fuel efficient vehicles in North America, an
acceleration in healthcare costs, or an unanticipated economic downturn. GM also
remains burdened by a high fixed cost structure due to its large retiree base
(2.5 retired workers for every active worker) which result in large pension and
healthcare burden. Despite these challenges, and any resulting pressure on the
Baa1 rating, Moody's believes GM fundamental business and competitive position
will remain sound. In addition, the company's strong liquidity position of $23.5
billion affords GM considerable capacity to adjust its operating strategy to
accommodate adverse market developments. As a result, the rating agency does not
anticipate any intermediate-term circumstances that could necessitate a rating
lower than Baa2/stable. Although it is possible that circumstances could emerge
that would result in a lower rating level, Moody's believes that these
circumstances (which include market or competitive developments beyond GM's
control and, to a lesser degree, a diminished pace of success GM's execution of
its operating plan) have a relatively low probability of occurring.
Consequently, a Baa2 rating with a stable outlook reflects a prudent and
reasonable intermediate-term floor for GM's rating.
During the past year GM has made important operational and financial progress
by: revitalizing the Cadillac brand; disposing of its GM defense and Hughes
investments; deferring and potentially minimizing the negative effects of the
put option that might require it to purchase Fiat's automotive operations,
funding its US pension obligation, and continuing to generate strong free cash
flow, and maintaining a competitive variable cost structure.
As Moody's continues to monitor GM, and assesses its ability to support the Baa1
rating, the rating agency will focus on the following areas:
Market Share: GM's share in the US market fell to 28.0% in 2003 from 28.3%
during 2002, despite an aggressive incentive strategy. Sustaining market share
without reliance on overly aggressive incentives is a critical indicator of
long-term competitiveness. Moody's expects GM to maintain US share near the 28%
level based on the attractiveness and cost-competitiveness of its models rather
than on aggressive incentives.
New Product Program: During 2004 and 2005, GM will attempt to broaden its
revenue and earnings base with an aggressive new-product release schedule that
includes a number of important cars. Moody's will closely monitor the success of
these introductions.
Brand Image: In order to maintain appropriate market share levels, and to
support the success of new product launches, GM must begin to make more notable
progress in strengthening the image of its brands. Consequently, data points
relating to Consumer Reports recommendations, JD Power evaluations, warranty
expenditures, and recalls will be key considerations.
European Operations: GM's European operations account for over 20% of its global
shipment levels, but generate chronic losses. Moody's expects GM to make clear
and sustainable progress in moving toward modest profitability in Europe during
2004 and more acceptable returns over the long term.
Earnings: Net automotive earnings for 2004 should approximate $2.0 billion, with
$1.5 billion in North America, $800 million in Asia, better-than breakeven in
Europe, and approaching breakeven in Latin America. GMAC's earning should
sustain an annual run rate exceeding $2.0 billion.
Cash Generation: During 2003 GM free cash flow from automotive operations was a
strong $8.0 billion. During 2004 this figure should remain on track to exceed $5
billion. As the rating agency assess this cash flow outlook it will pay
particular attention to the degree to which funds are generated from
sustainable, high-quality factors such as earnings as opposed to less
sustainable contributors such as tax refunds or working capital changes that are
subject to reversal.
Moody's expectation is that GM will demonstrate a trend of solid overall
progress in the areas on which the agency will focus. The rating agency does not
anticipate that the data emerging in any of these areas will act as a trip-wire
that results in the need for a rapid rating adjustment. Rather, the agency
expects that trends in the areas that are controllable by GM and reflective of
its ability to execute the revitalization plan, as well as trends in less
controllable market factors, will be a more meaningful indicator of the
company's ability to sustain the Baa1 rating.
General Motors Corporation, headquartered in Detroit, Michigan, is the world's
largest producer of cars and light trucks. GMAC, a wholly-owned subsidiary of
GM, provides retail and wholesale financing in support of GM's automotive
operations and is one of the worlds largest non-bank financial institutions.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS ACCEPTANCE CORPORATION
-------------------------------------
(Registrant)
Dated: April 30, 2004 /s/ SANJIV KHATTRI
---------------- -------------------------------------
Sanjiv Khattri
Executive Vice President,
Chief Financial Officer and Director
Dated: April 30, 2004 /s/ LINDA K. ZUKAUCKAS
---------------- -------------------------------------
Linda K. Zukauckas
Controller and Principal Accounting Officer