S&P hikes GM to investment grade

David Shepardson and Melissa Burden
The Detroit News

Washington — Standard & Poor's Ratings Services said Thursday it is upgrading the Detroit automaker and its captive finance-arm subsidiary to investment grade — a move that will lower the cost of borrowing for GM's auto lending unit.

It's the second major ratings agency to boost the automaker's credit rating to investment grade. A year ago, Moody's Investors Service upgraded GM to investment grade. That marked the first time since May 2005 that any of the major rating houses deemed the Detroit-based automaker at better than junk status. Fitch Ratings is the only agency that has not lifted GM to investment grade.

shows General Motors headquarters in the Renaissance Center in Detroit.

Standard & Poor's said it boosted GM because it sees better prospects for diversified profits across regions in the next two to three years.

"We believe GM will likely sustain its improving track record of profitability in North America (excluding recall-related headwinds), achieve its mid-decade profitability target in Europe and maintain its strong market share in China," the agency said.

Standard & Poor's said while GM's recalls of 29 million vehicles this year remain a negative factor for the company's business, it expects "ongoing cash outflows associated with the recalls to be manageable." GM earlier this year took recall-related charges of about $2.5 billion, but it faces numerous lawsuits and possible fines for the delay of its ignition switch recall through ongoing investigations by the Department of Justice and 45 state attorneys general.

Despite the recalls, Standard & Poor's expects GM will remain the market share leader in the U.S.

"Market share for GM has been steady, signaling that the recent recalls hadn't significantly dented consumer appetite for the company's vehicles," the agency said.

The automaker at the end of the second quarter had nearly $39 billion in liquidity, including about $28 billion in cash.

"Delivering segment-leading vehicles, improving the efficiency of our operations and building a fortress balance sheet made this upgrade possible," GM CEO Mary Barra said. "While we are not yet satisfied, and know we have work to do, I am confident that our renewed focus on our customers will drive even stronger business results."

Last year, Fitch Ratings upgraded GM to a positive outlook from stable, but kept its rating just below investment-grade status. Fitch said it could boost GM's issuer default ratings within the next two years if it grows margins in North America and improves its performance in Europe.

In May 2013, then-GM CEO Dan Akerson said GM was on the "cusp" of regaining its investment-grade status. In June 2013, it returned to the Standard & Poor's 500 index. The company has posted 14 straight profitable quarters since emerging from bankruptcy.

In September 2013, S&P raised GM's outlook to positive from stable and indicated it would possibly upgrade GM's credit rating by the end of 2014.

GM stock closed closed down sharply on Thursday before the announcement by Standard & Poor's. It dropped 2.3 percent for the day, to $32.87. GM stock is down 19 percent for the year — and is below its $33 initial public offering price. The stock is near its lowest point since when it fell below $32 a share in April.

GM plans to share more details on its near-term business targets and long-term plans at its annual Global Business Conference for investors next week.