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Fitch Comments on Ford and GM Outlooks

Business Wire, May 7, 2008

CHICAGO -- Fitch Ratings has published the following comments regarding its Outlooks for Ford and General Motors (GM) following their first quarter (Q1) earnings.

As economic conditions and high gas prices continue to erode North American unit sales at Ford and GM, the companies remain in the middle stages of their lengthy restructuring efforts. Although both companies have achieved substantial reductions in fixed costs, primarily through headcount reductions, Ford and GM will continue to experience heavy cash drains in 2008 and reduced liquidity. In the absence of a rebound in economic conditions and industry sales through 2009, both companies are likely to remain cash flow negative during this period.

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Fitch currently has an Issuer Default Rating (IDR) of 'B' with a Negative Outlook for both Ford and GM, and both ratings are expected to remain on negative outlook until a clearer path toward positive cash flow is established. Given progress on its restructuring program and its product profile, Ford may achieve this during 2008, while liquidity drains in 2008 at GM pose a risk of a further downgrade in the rating.

FORD:

Ford has demonstrated considerable progress in its restructuring efforts - to its fixed costs, manufacturing footprint, and product profile -- which could result in a Stable rating at some point in 2008 if cost efforts and product competitiveness continue along the same trendline. Ford's reported financial results over the next several quarters will continue to reflect the benefits of the company's restructuring efforts, particularly resulting from its hourly buyout programs. (Please see Fitch's press release of Feb. 14, 2008). Ford has also benefited from having numerous local operating agreements in place prior to negotiation of the national contract, resulting in better integration and smoother implementation of the downsizing efforts. Capacity and headcount reductions are proceeding on plan.

Ford's consolidated results will remain dependent on the critical North American pickup market, and the company is unlikely to return to positive free cash flow until the pickup market rebounds along with economic conditions. In any scenario, 2009 results should benefit from the introduction of the new F-Series. Unit sales in the smaller end of its lineup (Fusion, Escape, Focus) have recently held up well, providing a modest level of support for consolidated results. The company's Edge crossover, and two new product introductions this year, the Flex and the Lincoln MKS sedan, are also expected to provide support for volumes. Ford's quality performance could also have a growing impact on longer-term operating results. International operations have demonstrated improvement, providing a modest positive to the company's consolidated profile.

Heavy cash drains are projected through 2008 and into 2009, but liquidity is adequate and sufficient to weather moderating operating losses, restructuring costs, and weak economic conditions through 2009. Ford has also undertaken a number of equity-for-debt swaps over the past year in an effort to moderate the leverage and financial impact of the restructuring efforts, an effort that Fitch expects will continue. The recent share purchases by Kirk Kerkorian are not a factor in the rating. Although Mr. Kerkorian has historically been an activist investor across his investments, including actions that have not been bondholder-friendly, in the case of Ford, the interest of bondholders and equity holders are currently very much aligned.

GENERAL MOTORS:

At GM, North American operating losses and restructuring costs are likely to further erode liquidity in 2008 and 2009. Liquidity has been supported by numerous asset sales, but the lack of further asset sales is likely to mean an accelerated decline in the short term and could result in a downgrade of GM in 2008. Additional debt financings could boost liquidity, but high debt levels and financing costs, coupled with lower interest income, will take a toll on operating cash flows. (Please also see Fitch's most recent press release on GM dated Feb. 27, 2008 for more details.)

Fitch believes that inadequate contribution margins across a number of the company's products and production facilities will require further restructuring efforts and the closure of 2-4 assembly plants in addition to what has been announced to date. In addition, the continuing American Axle strike, GM's difficulty in negotiating local operating agreements (that have resulted in further labor actions), and the lack of resolution to the Delphi situation will delay GM's ability to realize fixed cost reductions and other purchasing, materials and production efficiencies in the near term. This will most likely prevent GM from reversing negative cash flows through 2009. GM's international operations continue to be a growing strength for the company's credit profile.

Rating factors that could trigger a downgrade include:

--Consolidated 2008 cash drains in excess of $8 billion, which results in liquidity dropping below $20 billion;

Business Services Industry

Fitch Comments on Ford and GM Outlooks

Business Wire, May 7, 2008

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