The downgrade is the result of an increasingly more negative incentives environment, weaker than expected share performance in the key US light vehicles market (down to 27.3% calendar year to date), ongoing concerns about healthcare / pension costs, and longer term concerns about GM’s competitive position especially in the key US market and especially in light of the upcoming United Auto Workers (UAW) negotiations. Positives include GM’s strong liquidity position, the extended nature of its debt maturity schedule, strong product introductions such as the Hummer H2, better product mix in North America, stronger pension asset performance, and the strong performance at GMAC and in the Asia Pacific region.
On behalf of the Board of Directors, PACIFIC INSIGHT ELECTRONICS CORP.
One of Fitch’s foremost concerns is that the current pricing environment may have permanently lowered the profitability profile of those companies that have most strongly participated. In the case of GM, Fitch is concerned that GM may be unable to restore the margins that have been lost over the last two years. This is especially true in the car portfolio which has been a laggard for several years. Although good new products can be helpful in increasing profitability, it is not clear to what degree, as the industry has shortened its product cycle substantially over the last five years. Innovative and well positioned products like the H2 and the XLR have demonstrated that it is possible to hold relatively stable in this very negative pricing environment. However, these are relatively niche products that do not represent substantial volumes. The counter to that are the Cadillac ESV and CTS which already have low rate financing in place. Finally, although we recognize the benefits of a consistent marketing message, we feel that at this point GM is leaving money on the table in that its consistent message is hurting the overall profitability of the company. GM has lost both pricing and share in the US (down from 28.1% CYTD in 2002 to 27.3% in 2003). Although Fitch recognizes that there are other factors at work (such as capacity utilization concerns), much of this is happening despite the fact that GM has what we consider a generally competitive overall portfolio of vehicles (especially trucks).
In Canada, Daytime Running Lamps have been mandatory in new vehicles since 1990. Pacific Insight has been the sole aftermarket supplier to GM Canada and many other vehicle manufacturers for this Canadian requirement. Insight has sold over 40,000 units through GM dealers in Canada since its introduction. With DRL now moving across the border to the US, Insight expects that sales should be 5 to 10 times the sales which were achieved in Canada.
The Vancouver Stock Exchange has not yet reviewed and does not accept responsibility for the adequacy or accuracy of this release.
Pacific Insight Electronics, located in Nelson, B.C., manufactures Daytime Running Lamps, Automatic Headlight Control Systems, Police and Emergency Vehicle Accessories, Vehicle Security Products, Truck Lighting and Computer Components and Electronic Control Modules both for Original Equipment and Aftermarket customers. Pacific Insight’s major customers include Avis Rent a Car, Alamo Rent a Car, Dominion Automotive, Eaton Corp., General Motors Corporation, Navistar Trucks, Peterson Manufacturing, Volvo-GM Heavy Truck and Western Star Trucks.
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Fitch has downgraded the senior unsecured debt of General Motors Corporation (GM) and its financial services subsidiary, General Motors Acceptance Corp. (GMAC) and related entities to ‘BBB+’ from ‘A-’. Fitch affirms the corresponding commercial paper ratings at ‘F2′. The Rating Outlook remains Negative. A list of all affected ratings is detailed at the end of this release.
General Motors Corp. has recently announced that it will be offering Daytime Running Lamps as a standard feature on all new vehicles by 1997. GM has already begun offering this feature on 4 models in 1995. General Motors is now actively promoting DRL availability in national television, radio and print corporate advertising. This national exposure will create demand for the product.
