DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Revolving Credit Facility rating of General Motors Company (GM or the Company) at BBB (high). Concurrently, DBRS Morningstar also confirmed the Long-Term Issuer Rating and the Long-Term Senior Debt rating of General Motors Financial Company, Inc. (GM Financial) at BBB (high) and GM Financial’s Short-Term Issuer Rating and Short-Term Instruments rating at R-2 (high). Additionally, DBRS Morningstar confirmed the rating of the Senior Unsecured Notes issued by General Motors Financial of Canada, Ltd at BBB (high). The trends on all ratings remain Stable. The confirmations of the ratings 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. Moreover, the Company’s consistent and moderately improving earnings performance amid its conservative financial policy results in a solid financial risk assessment (FRA) that provides some cushion within the currently assigned ratings.
GM’s 2022 industrial earnings increased materially year over year (YOY); the higher profitability reflected pent-up demand amid the progressively improving (albeit still ongoing) global semiconductor shortage. Accordingly, wholesale volumes were up YOY, bolstered by attained pricing gains. These factors were partly offset by mix normalization (consistent with the moderation of the chip shortage) and cost increases that included higher commodity costs, logistic costs, and production expenses. In Q1 2023, amid underlying factors broadly consistent with those outlined for 2022, GM’s industrial earnings continued to trend positively (increasing relative to Q1 2022). For 2023, GM has targeted its industrial earnings to increase further YOY in line with ongoing volume growth, substantially reflecting increased production levels as supply chain challenges moderate, notwithstanding some softening in demand amid economic headwinds. Additional anticipated contributing factors include structural cost improvements and upcoming product launches; these are assumed to be partly offset by some softening in pricing (from very strong recent levels) and increased investments associated with the progressive electrification of GM's product portfolio. Regarding the Company’s financial services business, GM Financial, this segment’s performance has remained solid, although earnings have softened (as anticipated) from peak levels in the prior year due to decreased lease vehicle income (given less favourable residual value performance), higher provisions for credit losses, and narrowing financial margins.
Going forward, DBRS Morningstar expects the Company’s profitability to remain rather favourable, with GM’s strong core SUV and truck franchise estimated to persist in solid earnings/cash flow generation likely readily sufficient to absorb ongoing sizable costs/investment requirements associated with the progressive electrification of its product portfolio and targeted growth in new mobility business initiatives.
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. Conversely, 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.
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 (May 17, 2022).
All figures are in U.S. dollars unless otherwise noted.
DBRS Morningstar applied the following principal methodologies:
-- Global Methodology for Rating Companies in the Automotive Manufacturing and Supplier Industries (October 14, 2022)
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023)
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.
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The rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.
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