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Investors’ Service Reviewing GM Debt Rating

December 4, 1987

DETROIT (AP) _ Moody’s Investors’ Service said today it is reviewing its ratings for General Motors Corp. and General Motors Acceptance Corp. long-term debt to determine the giant automaker’s future in a toughening market.

Moody’s analyst Carol Verschell said if GM’s long-term debt rating is downgraded from its current AA1, Moody’s second-highest rating, it could increase the cost of borrowing for the nation’s largest automaker.

In response to the Moody’s decision, GM spokesman Bill Winters said ″General Motors is one of the most financially sound industrial organizations in the world. We will continue to maintain very strong balance sheets at both GM and GMAC to provide substantial financial flexibility for the corporation and security for our debt-holders.

″Our investments in new products, modernized facilities, a trained workforce and advanced technology provide the necessary foundation for sound long-term financial performance,″ he said.

Verschell said the Moody’s review would attempt to predict GM’s long-term performance and was not a response to short-term performance or events.

″It’s the growing uncertainties about the (auto) market and GM’s ability to adapt to the market,″ she said. GM has lost market share for the last two years to domestic and foreign competitors.

GM’s rating was last downgraded in 1982, during the recession, and upgraded later, Verschell said.

GM is the only one of the Big Three U.S. automakers whose rating is under review by Moody’s, said Moody’s spokesman Michael Medd. Ford Motor Co.‘s rating is AA2 and Chrysler Corp.’s is BAA1, both lower ratings than GM’s.

In 1986 and through most of 1987, GM’s earnings were eclipsed by the much- smaller but more profitable Ford.

″The review will focus on GM’s ability to regain momentum and to strengthen its long-term business position in the face of an increasingly difficult operating environment,″ Moody’s said in a statement.

″The rating agency will also examine GM’s consoliated financial condition and the effect of intensifying competition on its operating returns, its debt- protection measures and its liquidity.″

Verschell and Medd said the review also will assess the potential success of GM’s cost-cutting programs and its new-product plans, which were designed to address ″core product and cost problems,″ in the perspective of the pressures of a changing auto market.

″These pressures originate in the proliferation of competitors and production capacity, concurrent with the expected decline in demand″ for vehicles, Moody’s said.

Moody’s also will look at GM’s apparent inability to maintain sales without offering buyer incentives, which add to its operating costs and cut profits.

Verschell said the review should take four to six weeks.

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