DBRS Limited (DBRS Morningstar) upgraded the Issuer Rating and Revolving Credit Facility rating of General Motors Company (GM or the Company) to BBB (high) from BBB. Concurrently, DBRS Morningstar also upgraded the Long-Term Issuer Rating and the Long-Term Senior Debt rating of General Motors Financial Company, Inc. (GM Financial) to BBB (high) from BBB and GM Financial’s Short-Term Issuer Rating and Short-Term Instruments rating to R-2 (high) from R-2 (middle). Additionally, DBRS Morningstar upgraded the rating of the Senior Unsecured Notes issued by General Motors Financial of Canada, Ltd. to BBB (high) from BBB. DBRS Morningstar also changed the trends on all ratings to Stable from Positive. The rating upgrades reflect GM’s consistent and moderately improving earnings performance that has caused the Company’s financial risk assessment (FRA) to migrate to levels above the previously assigned ratings. The ratings continue to reflect GM’s sound business risk assessment (BRA) as a major global automotive original equipment manufacturer with a strong core franchise in full-size sport utility vehicles (SUVs) and pickup trucks.
DBRS Morningstar had previously indicated (in its Press Release dated June 22, 2021) that the ongoing solid operating performance of the Company would likely result in an upgrade of the ratings. Despite lower global deliveries for the second consecutive year (2021 volumes being adversely affected by the global semiconductor shortage and other supply chain challenges), GM’s 2021 industrial earnings increased year over year. The improved profitability incorporated firmer product mix (that considerably reflected the deliberate allocation of available semiconductors to the production of higher margin vehicles) and strong pricing (effectively enabled by sizable pent up demand caused by the protracted disruptions in automotive production); these factors more than offset the aforementioned contraction in volumes and cost increases that included higher material/commodity costs, the nonrepeat of certain austerity measures implemented in 2020 in response to Coronavirus Disease (COVID-19) and higher engineering spend. GM’s industrial earnings were bolstered by record profitability of the financial services business amid reduced provisions for credit losses and very favourable residual value performance (reflecting strong used car values given the ongoing scarcity of available vehicles).
Going forward, DBRS Morningstar expects the Company’s profitability to remain at solid levels. The estimated favourable earnings performance incorporates assumed volume growth reflecting higher production levels (in line with the progressive resolution of the semiconductor shortage) amid significant pent up demand that, for the time being, is estimated to more than offset possibly weaker consumer sentiment stemming from inflationary pressures, rising interest rates, and increased geopolitical uncertainty. Pricing is also likely to remain firm reflecting the aforementioned pent-up demand and GM’s strong core SUV and truck franchise. DBRS Morningstar observes that the Company is actively embracing the electrification of its product portfolio in addition to new mobility business initiatives, both of which (while remaining modest in the context of the current automotive industry) would appear to offer substantial long-term growth potential. While the Company faces sizable associated investments and higher product development costs in line with the increasing electrification of its products, these are estimated to be reasonably absorbed by GM’s earnings/cash flow generation.
DBRS Morningstar expects the Company’s ratings to remain constant over the near to medium term, as GM’s solid FRA provides some cushion to absorb a moderate decline in earnings. However, further positive actions are likewise somewhat unlikely, as DBRS Morningstar is taking into account the aforementioned sizable cost and investment requirements facing the Company, with the ratings also being somewhat underpinned by GM’s existing BRA.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
DBRS Morningstar considered that the environmental factor, specifically costs relating to carbon and greenhouse gas emissions, represent a relevant factor as GM’s products are subject to a wide range of regulatory scrutiny relating to greenhouse gas emissions and fuel efficiency (among other factors). The Company has accelerated its transition to an all-electric future. In 2021, the Company increased its commitment to investments in electric vehicles (EV) and autonomous vehicle technologies to more than $35.0 billion from 2020 through 2025, with plans to launch more than 30 new EV models globally in that time frame.
While the environmental factor could have some negative credit impact, DBRS Morningstar does not deem it sufficient to change the ratings or the trends assigned to GM. There were no social or governance factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
All figures are in U.S. dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries (October 14, 2021; https://www.dbrsmorningstar.com/research/385892) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).
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The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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