General Motors Confronting Challenges

UBS- Aggressive pricing, high gas prices, and exposure to SUVs:

In our opinion, recent discount sales programs have increased the risk that GM will continue to need to use incentives to sell new models. Continued aggressive pricing, high gas prices, and GM's exposure to larger SUVs are likely to partly offset the expected narrowing in operating losses as GM ramps up new model sales in 2006.

Delphi: negative scenarios: Delphi's very weak credit condition and the possibility of a bankruptcy filing creates additional risk for GM. While we continue to expect GM to reach a restructuring agreement with Delphi, we believe the burden of such an agreement could fall substantially on GM if the UAW refuses to provide meaningful relief on the healthcare cost front.

S&P highlights increased risk of rating downgrade: S&P recently highlighted increased ratings risk related to rising oil prices and GM's and F's SUV exposure, with more negative comments on GM. While there could still be restructuring actions that could lead to an investment grade rating for GMAC, in our opinion, this is becoming more difficult, particularly at S&P.

We maintain Underperform; Investor risk tolerance is key: We maintain an Underperform opinion on GM and rate GM BB with a Deteriorating Credit Trend. Investors should consider whether reducing/eliminating positions in GM/GMAC bonds is warranted given their risk tolerance profile.