General Motors Gains On Credit Rating Upgrade By S&P
Share price of General Motors Co. (GM - Analyst Report) rallied 0.9% to $33.17 after Standard & Poor’s (S&P) Ratings Services upgraded the credit ratings of both General Motors and GM Financial to investment grade with a stable outlook. The current GM corporate and GM Financial credit ratings stand at BBB-.
S&P had assigned a junk rating to General Motors in 2005, which was four years before the company hit bankruptcy. Prior to the current upgrade, the corporate rating of General Motors was pegged at BB+, while GM Financial’s rating had stood at BB.
S&P had assigned the BB+ rating to General Motors in Sep 2011. Following this, the rating organization had revised the company’s outlook from stable to positive in Sep 2013.
The rating upgrade was based on General Motors’ initiative to deliver leading vehicles together with improving operational efficiency. In addition, the company boasts a strong balance sheet and had cash and cash equivalents of $19.9 billion as of Jun 30, 2014. During the first half of 2014, General Motors had a net cash flow of $5.8 billion from automotive operations, up from $5.7 billion in the comparable year-ago period.
S&P believes that General Motors will be able to continue improving profits in North America and also achieve profitability in Europe soon. The agency is also optimistic about the strong sales being generated by the company in China. Recently, the automaker announced expectations of selling over 3.1 million vehicles in China this year.
However, the rating agency is concerned about the large number of vehicle recalls by General Motors. The company has announced 66 recalls covering about 29 million vehicles in North America so far this year. Owing to the series of recalls made, General Motors recorded a $2.5 billion charge for recall-related repairs in the first half of 2014.
General Motors is a prominent player in the automotive industry along with Ford Motor Co. (F - Analyst Report), Honda Motor Co., Ltd. (HMC - Analyst Report) and Tesla Motors, Inc. (TSLA - Analyst Report).
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Disclosure: None.
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