General Motors Update: GM versus GMAC
The following is a summary of a UBS full-length report on this topic, dated January 25, 2006.
GM versus GMAC:
General Motors Corp. (GM), the auto unit, owns 100% of GMAC, itscaptive finance subsidiary. We focus on the characteristics of and prospects for these related entities and the implications for GM versus GMAC bonds as investment vehicles.
GMAC stronger on a standalone basis, but linked to GM:
GMAC's credit metrics are substantially better than GM's on a standalone basis, both because of superior profitability and because of GMAC's relatively liquid and very diversified asset base compared to GM's less liquid manufacturing assets. However, GMAC remains linked to GM's credit due to GMAC's dependence on GM for auto finance business and due to GM's ability to take dividends from GMAC.
We maintain Sell on GM:
We maintain a Sell on GM, rate GM 'B-', and maintain a "Deteriorating" credit trend.
GM bonds versus GMAC bonds:
In light of increased credit and default risk at General Motors Corp., we recommend that investors sell General Motors Corp. bonds. In view of the potential for a sale of GMAC, we are not recommending that investors sell GMAC bonds. However, we prefer GMAC bonds with maturities not later than 2010, that we consider to be fairly valued and have less downside credit risk than longer dated bonds.
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