GM And Ford Face Extraordinary Challenges In 2006, Says S&P Report

NEW YORK, March 9 /PRNewswire/ -- Automakers General Motors Corp. and Ford Motor Co. will face unprecedented financial and operational challenges in 2006 as they fight to turn around their ailing performance in the critical North American market. The two giant automakers will continue to face the same triple threat that produced poor results in 2005: excess capacity, high legacy costs, and changing customer preferences, as evidenced by the declining sales of higher-profit SUVs. And, while both companies grapple with those problems, they will be preparing for what seems likely to be tough bargaining with the United Auto Workers (UAW), whose labor contract with the automakers ends in 2007. Both companies currently have substantial liquidity but also prospective calls on that liquidity. Standard & Poor's believes that if they cannot reverse the negative trends that have buffeted them, General Motors could ultimately have to restructure its debt and contractual obligations, while a somewhat healthier Ford could suffer from the price actions of its competitors.

These are some of the conclusions detailed in a recently published special report, "GM And Ford Need Traction On North American Turnaround in 2006." The article is part of a collection of reports on the global automotive industry that will be the cover story of Standard & Poor's March 13, 2006, CreditWeek, the investment research leader's weekly magazine on credit risk. (CreditWeek asked six senior Standard & Poor's economists and credit and equity analysts to look at the global automotive industry, focusing on conditions in the U.S., Europe, and Asia from a range of perspectives, including manufacturers, lenders, and consumers.)

"These turnarounds will be difficult and time is short," said Standard & Poor's credit analyst Robert Schulz, author of the report. "Both Ford and GM have already begun broad multiyear restructurings to cut costs. Those efforts will be critical in further evaluating both credits."

"The degree of success Ford and GM achieve with their new products and the restructurings that they have already announced will determine their cash generation levels and be a key factor for us in their rating," said Mr. Schulz.

Even now, GM and Ford must be considering the implications of the labor negotiations. These contract negotiations will have to address many of the changes and cost savings already announced by the automakers. We expect the negotiations to be difficult. While it is impossible to foresee the state of the industry 18 months hence, so much is at stake for both labor and management in these talks that we would not be surprised to see some sort of work stoppage at one of the automakers. Clearly, neither company nor the UAW is likely to prefer that outcome. As such, Standard & Poor's, while cognizant of the possibility of a strike, does not incorporate such a negative event into our current GM or Ford ratings.

Copies of CreditWeek's special report on the auto industry are available to subscribers of RatingsDirect, Standard & Poor's Web-based credit research and analysis system, at . In addition, articles and video clips of interviews with their authors will be available as of Monday, March 13, 2006, at .

Standard & Poor's will hold a telephone conference call on Tuesday, March 14, 2006, 11:00 a.m. U.S. Eastern Time, to examine issues confronting the global auto manufacturing industry. Among questions to be answered are, "How bad are the Detroit-based automakers' problems; at what point might U.S. auto company market share stop declining; is Japan the only real non-U.S. competitor; what opportunities and challenges do Europe and Asia offer; and can disillusioned customers ever be regained?" Speakers participating in this teleconference include Standard & Poor's automotive equity analyst Efraim Levy, automotive credit analyst Robert Schulz, Standard & Poor's economists, David Wyss and Jean-Michel Six, and J.D. Power chief economist, Robert Schnorbus. Like Standard & Poor's, J.D. Power & Associates, is a division of The McGraw-Hill Cos. Call-in information for this March 14 teleconference appears below. The teleconference coincides with the publication of the special report on the automobile industry in Standard & Poor's CreditWeek, its weekly publication on credit risk. After prepared remarks, team members will be available to answer your questions.

Please note that Standard & Poor's offers all of its broadcast teleconference calls to all interested participants on a complimentary basis.

The call will begin promptly at the time indicated. Please call at least 15 minutes before the scheduled start of the call to complete the pre-call registration process.

    Live Dial-in Numbers:
    U.S./All Others: 1-484-630-6253
    U.K.: 44-20-7943-5370
    Conference ID# 7373584
    Passcode: SANDP

Replays: Recorded replays of the call are made available about an hour after the call concludes and are available until Tuesday, March 21, 2006. Replay number: 1-402-220-9780.

RealAudio: The call will also be available live in "listen-only" mode at for listeners with the Real Player software, sound card, and speakers. The RealAudio playback is available until Tuesday, April 11, 2006. If you have any questions about the conference call, please e-mail: Email Contact .

    The report is available to subscribers of RatingsDirect, Standard & Poor's
Web-based credit research and analysis system, at If you are not a RatingsDirect subscriber, you
may purchase a copy of the report by calling (1) 212-438-9823 or sending an
e-mail to 
Email Contact . Ratings information can also
be found on Standard & Poor's public Web site at ; under Credit Ratings in the left navigation
bar, select Find a Rating, then Credit Ratings Search. All Standard & Poor's
research information is accessible for 24 hours after publication on the
public Web site. Members of the media may request a copy of this report by
contacting the media representative provided.

About Standard & Poor's

Standard & Poor's, a division of The McGraw-Hill Companies (MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research and data. With approximately 6,300 employees located in 20 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit

CONTACT: Media Contact: John Piecuch, New York (1) 212-438-1102;
Email Contact Analyst Contact: Robert Schulz, CFA, New
York (1) 212-438-7808

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