The Standard & Poor’s credit rating service this morning improved its view of General Motors Co.’s rating from “BB-” to “BB+” the highest junk level, and just one notch below investment grade. This will allow to GM to borrow money at lower interest rates.
The upgrade came one day after the GM’s 49,500 UAW employees ratified a new four-year contract that will not raise GM’s labor costs, and will provide bonuses based on profitability instead of automatic pay raises. GM at this time appears to have the lowest labor costs among the Detroit Three since both Ford Motor and Chrysler UAW contracts are unresolved. It’s ironic that it took a Democratic President to curb the union – in essence breaking it – under the forced bankruptcy reorganization of GM, which included a no strike clause.
The GM UAW agreement was ratified by 65% of production workers and 63% of skilled trades members.
“GM’s prospects for generating free cash flow and profits in its automotive manufacturing business continue to solidify, because of its cost base in North America, combined with prospects for some gradual improvement in light-vehicle sales in North America into 2012,” S&P credit analyst Robert Schulz said in a statement.
GM made $5.4 billion during the first half of this year, and it made $4.7 billion in 2010. GM’s breakeven point in the U.S. remains at a total industry volume 10.5 million units annually. U.S. sales right now are running at a rate of more than 12 million units annually.
“We are pleased that S&P has recognized the progress we are making. Our fortress balance sheet and low breakeven point are helping us succeed even in uncertain economic times, so we can stay focused on building great products and driving profitable growth around the world,” said Dan Ammann, General Motors senior vice president and chief financial officer. GM spends about $5 billion annually in U.S. labor costs, according to Ammann, down from $11 billion in 2007 before its bankruptcy reorganization in 2009.
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