General Motors Company -- Moody's affirms GM ratings, Baa2 for senior unsecured bank facility and Baa3 for senior unsecured notes; Outlook changed to stable.

Rating Action: Moody's affirms GM ratings, Baa2 for senior unsecured bank facility and Baa3 for senior unsecured notes; Outlook changed to stable.Global Credit Research - 29 Mar 2021New York, March 29, 2021 -- Moody's Investors Service, ("Moody's") affirmed the ratings of General Motors Company's (GM) debt, including the Baa2 for senior unsecured bank credit facility and the Baa3 for senior unsecured notes. The outlook is changed to stable from negative.The change in outlook follows GM having maintained sufficient liquidity and demonstrated the operating flexibility to weather the drop and then recovery from the Covid-induced pandemic, while maintaining investments to support near term product development. Moody's anticipates solid free cash flow as the auto industry recovers at $1.5 to $2.0 billion even with the net impact of the semiconductor shortageSee separate release for rating and outlook actions for General Motors Financial Company, Inc.RATINGS RATIONALEThe ratings reflect Moody's expectation that GM will sustain a North American automotive EBIT margin approximating 10%, and that its global EBIT margin will exceed 6%. These margins will be supported by the company's formidable North American truck and full-size SUV franchises. These operations will also be critical in offsetting the still weak performance in GM's international operations (excluding China), the meaningful losses at the Cruise operation, and the funding required for the company's aggressive expansion of its battery electric vehicle (BEV) and autonomous vehicle (AV). GM has low financial leverage, and the manufacturing company operates in a net cash position, reflecting the massive capital requirements and the sharp cyclicality characteristic of the auto industry.This will represent an important restoration of the earning levels that GM generated prior to the three-year 2018--2020 period that was burdened by large restructurings, a North American strike, and the Covid-driven downturn.GM benefits from one of the leading market positions in China where it should generate annual equity earnings and dividend receipts approximating $800 million. If included in Moody's EBIT calculation, the China contribution would lift GM's overall EBIT margin to approximately 6.75% from 6%. The Chinese auto market is the world's largest at 25 million units, compared with approximately 15 million in the US, and is destined to become the world's biggest market for BEVs.Moody's anticipates that GM's aggressive investments in the BEV and AV sectors position the company as one of the leaders in these areas. The rating agency expects that BEVs will rise from about 3.5% of global automotive shipments currently, to 12% by mid-decade and over 25% by 2030. GM is allocating more than $27 billion in BEV and AV investments through 2025; it will launch 30 new BEV globally by 2025, with 2/3 of these in North America; and, the company plans that its global auto portfolio will be carbon free by 2040.Cruise, GM's majority-owned AV company, is unlikely to generate meaningful returns for quite some time. Nevertheless, the exceptional long-term potential of the AV market, and Cruise's advanced position in the market, have supported the operation receiving approximately $7 billion in equity capital from GM and a broad range of partners.The ratings also reflect the broad range of challenges facing GM. The company's international operations (excluding China) lose approximately $1 billion a year, and it may be difficult to achieve acceptable returns. The China operation's $800 million earnings and dividend outlook is significantly below the $2 billion level that had been generated through 2018, and near term improvement is unlikely due to the increasingly competitive character of the region, and the substantial investments that will be needed to comply with emission regulations.The most formidable challenge facing GM will be establishing the profitability of its BEV portfolio as it shifts from an internal combustion engine (ICE) business model to one that will eventually be solely electric. BEVs are currently an unprofitable or a very low-return market for the entire auto industry. Attracting a customer base, establishing effective price points, and scaling up production to a level that can support the massive investments devoted to BEVs will be a significant long-term challenge for GM and its peers. This challenge will be further heightened by the need to sell an adequate number of BEVs and other alternative fuel vehicles AFVs) in order to comply with emission regulations.In addition to these challenges GM will also face areas of event risk that can seriously erode performance over an extended period. These risks include: economic cyclicality, restructurings, strikes, product recalls, supply chain disruptions, and regulatory/litigation costs.Maintaining a sound liquidity position is a core element of GM's financial strategy. At year-end 2020 the company had $24.0 billion of cash and $14.5 billion of available multi-year credit facilities for total liquidity of $38.5 billion. This compares with total automotive debt of $17.5 billion, of which $1.3 billion matures during the coming twelve months. GM's liquidity strategy affords it adequate capacity to repay maturing debt, fund investment plans, and contend with the ongoing event risk it faces.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe rating could be downgraded if operational disruptions or severe declines in retail sales and market share, especially in the North American light truck segment, lead to a total automotive EBITA margin (on a Moody's-adjusted basis) sustained below 4%, or a North American margin below 8%. The rating could also be downgraded if market reception or pricing on newly-launched BEVs is weak. Sustaining adequate financial capacity to contend with the event risk facing the sector will require GM to maintain its sound liquidity profile and debt/EBITDA below 3.5x.The ratings could be upgraded with expectations of an automotive EBITA margin approximating 8%; North American EBIT margin sustained above 10%; strong liquidity; and, low financial leverage with debt-to-EBITDA below 2.5x. An upgrade will also require continued progress in the key investments to remain an industry leader and lower incidence of company-specific restructurings.The Baa3 rating on GM's unsecured notes reflects the effective subordination of those notes to the Baa2 rated bank credit facilities, which benefit from a springing guarantee. GM is a holding company, with essentially all operating assets and the vast majority of liabilities held directly by its various subsidiaries. GM is the obligor under the Baa3-rated senior unsecured notes and the Baa2-rated $14.5 billion, multi-year credit facility. The notching differential between the notes and the credit facility results from the effective subordination of the unsecured notes to the liabilities at GM's US operating subsidiaries. A critical feature of the bank agreement is a provision for a springing upstream guarantee from domestic operating subsidiaries that would take effect if GM were to no longer have investment grade ratings from a minimum of two rating agencies. Because of this springing guarantee, Moody's views the bank facility as having a claim that ranks equal with that of the direct liabilities of GM's domestic operating subsidiaries.GM recognizes that carbon emission reductions will remain an important and long-term component of its operating strategy and product strategy, and is a key element underpinning its aggressive commitment to its electrification strategy.The company's large unionized workforce exposes it to the risk of labor strife. This risk could be heightened by changes in staffing requirements that may arise during the transition to BEVs from ICEs, and by tension that could be created by the sizable manufacturing facilities in Mexico.GM maintains an effective and well-functioning governance structure.The following rating actions were taken:Affirmations:..Issuer: General Motors Company....Senior Unsecured Bank Credit Facility, Affirmed Baa2....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3Outlook Actions:..Issuer: General Motors Company....Outlook, Changed To Stable From Negative The methodologies used in these ratings were Automobile Manufacturer Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062773, and Captive Finance Subsidiaries of Nonfinancial Corporations published in August 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1183459. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. General Motors Company, based in Detroit, Michigan, is one of the world's largest automotive manufacturers. For 2020 total automotive revenues were $109 billion.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Bruce Clark Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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