Fitch Ratings on June 4 affirmed the long-term issuer default ratings of General Motors Co. and its financial arm, General Motors Financial Co. Inc., with a stable outlook, citing the U.S. carmaker's strong market position in the regions where it competes.
The rating applies to General Motors' senior unsecured debt, General Motors Financial's senior unsecured and preferred long-term ratings and senior unsecured short-term rating, as well as General Motors Financial of Canada Ltd.'s long-term senior unsecured ratings.
Fitch said General Motors has solid profitability and is committed to maintaining a relatively conservative balance sheet. The agency expects the margin performance of the carmaker's key North American operations to remain strong relative to its peers. It added that the company's Chinese business, which is largely operated through unconsolidated joint ventures, has continued to perform relatively well despite growing pressures in the Chinese market.
The agency noted that General Motor's autonomous vehicle unit GM Cruise Holdings LLC is one of the key players in autonomous vehicle technology. Cruise's investors include SoftBank Vision Fund LP and Honda Motor Co. Ltd.
Meanwhile, increasing global trade tensions, volatile commodity costs, plateauing U.S. auto demand, weaker Chinese demand and rapidly evolving industry technological changes are likely to pose credit risks to the group, according to the rating agency.
Fitch added that a severe downturn in either China or the U.S., which accounts for 79% of the carmaker's retail unit sales volume in 2018, would have an outsized impact on the company's financial performance.
The agency also stressed potential tariffs on imported Mexican products to the U.S. as a going concern for General Motors as the company produced about 834,000 vehicles in the Latin American country in 2018, representing 26% of its total North American production. Most of these vehicles, including pickups and crossovers, were distributed to the U.S.
Meanwhile, Fitch said it expects General Motors's EBITDA leverage to remain close to 1.0x over the next several years and its EBIT margin to range between 6% and 7% over the intermediate term.
The agency said it could upgrade the ratings if General Motors sees sustained North American automotive EBIT margin of 10%; sustained global automotive EBIT margin near 6%; sustained free cash flow margin near 2.5%, excluding restructuring costs; or sustained funds from operations adjusted gross leverage near 0.5x, excluding restructuring costs.
A downgrade is also likely if General Motors slashes its automotive cash target to below $18 billion; if sustained global automotive EBIT margin nears 2%; if sustained free cash flow margin nears 0.5%, excluding restructuring costs; if sustained funds from operations adjusted leverage nears 2.5x, excluding restructuring costs; or in case of a significant weakening in the company's credit profile as a result of tariffs or other trade issues.