Banking Organizations, Autos & Auto Suppliers, Non-Bank Financial Institutions.
DBRS Limited (Morningstar DBRS) confirmed General Motors Company's (GM or the Company) Issuer Rating and Revolving Credit Facility rating at BBB (high). Concurrently, Morningstar DBRS confirmed General Motors Financial Company, Inc.'s (GM Financial) Long-Term Issuer Rating and Long-Term Senior Debt rating at BBB (high) and its Short-Term Issuer Rating and Short-Term Instruments rating at R-2 (high). Additionally, Morningstar DBRS confirmed General Motors Financial of Canada, Ltd's Senior Unsecured Notes rating at BBB (high). The trends on all credit ratings remain Stable.
KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations reflect GM's sound business risk assessment (BRA) as a major global automotive original equipment manufacturer with a strong core franchise in full-size sport utility vehicles (SUVs) and pickup trucks. Moreover, the Company's consistent and moderately improving earnings performance amid its conservative financial policy results in a solid financial risk assessment (FRA) that provides some cushion within the currently assigned credit ratings.
CREDIT RATING DRIVERS
Consistent with the Stable trends, Morningstar DBRS expects the Company's credit ratings to remain constant over the near to medium term. Like its peers, GM is facing substantial costs and investment requirements associated with the progressive electrification of its vehicle fleet (in addition to the expansion of its software services). While the Company announced certain revisions and delays in its investment plans given the recent slowing momentum in the adoption of electric vehicles (EVs), GM's ongoing investments amid higher shareholder distributions (substantially consisting of share buybacks) render positive credit rating actions over the near term rather unlikely. Conversely, significantly weaker earnings amid these high investments-resulting in sizable negative free cash flow generation and thereby adversely affecting credit metrics-could have negative credit rating implications, although this is mitigated by the Company's favourable FRA relative to its current credit ratings.
EARNINGS OUTLOOK
For 2024, Morningstar DBRS expects GM's earnings to range from essentially constant to slightly lower levels year over year (YOY), noting further that the Company's 2023 operating performance was strong. Regarding GM's key North American market, Morningstar DBRS estimates 2024 industry volumes to range from flat to moderately higher volumes YOY as pent-up demand (resulting from meaningful production interruptions over the past several years) becomes effectively depleted, with higher interest rate and inflationary pressures representing additional headwinds to sales volumes. Morningstar DBRS nonetheless notes that GM's wholesales stand to benefit from the nonrecurrence of the 2023 labour strike. Amid this normalizing demand, pricing is in turn expected to soften, albeit from very firm levels. From a cost perspective, GM expects to incur higher labour costs (in line with the new labour agreement attained last year); however, this is assumed to be partly offset by fixed cost reductions. In aggregate, the Company projects its North American operating margins to remain firm, in the range of 8% to 10%. Regarding GM Financial, GM anticipates the segment's 2024 pre-tax earnings to be essentially constant YOY.
FINANCIAL OUTLOOK
Morningstar DBRS anticipates GM's cash flow from operations in 2024 to remain solid, albeit likely moderating YOY given flat to slightly softer projected earnings (amid less favourable timing effects). Despite GM's revised (downward) capital expenditures (capex) and EV production plans, capex is projected to remain substantial and approximate prior-year levels. Dividend payments in 2024 are estimated to increase YOY, although persisting at moderate levels in aggregate. As a function of the above, free cash flow is expected to remain significantly positive in 2024. Share buybacks, while not amounting to last year's substantial level of $11 billion (reflecting GM's accelerated share repurchase program of $10 billion), will likely remain sizable in 2024; Morningstar DBRS notes that GM's board of directors recently approved a new share repurchase program of up to $6 billion. Regarding the elevated share buybacks in recent periods, Morningstar DBRS notes that GM had previously accumulated a considerable liquidity buffer in response to notable industry headwinds (including protracted supply chain challenges and a possible lengthy labour strike) that have now largely dissipated. Moreover, share repurchases remain wholly funded by cash generation, with GM's FRA and liquidity position persisting at strong levels.
CREDIT RATING RATIONALE
GM's credit ratings are supported by its solid position in North America, with the Company being the leader in its native U.S. market. The Company in particular has a strong franchise in full-size trucks, full-size SUVs, and midsize crossovers. Accordingly, GM's legacy internal combustion engine vehicles' solid earnings/cash flow generation facilitate the Company's progressive transition to EVs. Morningstar DBRS notes, however, that the Company's dependence on North America for earnings generation is in turn rather high, notably given the progressively weaker results in China over the past few years. GM's captive finance subsidiary, GM Financial, provides diversification benefits and plays an important role in supporting vehicle sales, with the segment being a source of significant and very stable earnings. Finally, GM's liquidity position is substantial, with the industrial operations having a net cash position.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
Morningstar DBRS considered that the E factor, specifically costs relating to carbon and greenhouse gas emissions, represents a relevant factor as GM's products are subject to a wide range of regulatory scrutiny relating to greenhouse gas emissions and fuel efficiency (among other factors). The Company is committed to an all-electric future, with GM having announced plans to become carbon neutral in its global products and operations by 2040. Additionally, the Company plans to eliminate tailpipe emissions from new light-duty vehicles in the U.S. by 2035. Attainment of these targets entails substantial investments on GM's part over the foreseeable future. Although the E factor results in additional costs for the Company, these are suitably absorbed by GM's strong financial profile and therefore do not result in any change in the credit ratings or trends assigned to GM. (For further details, please refer to the following commentary: 'The Future is Electric: Climate Change and the Global Automotive Sector' at https://dbrs.morningstar.com/research/413419.)
There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.
BRA AND FRA
(A) Weighting of BRA Factors
In the analysis of GM, the relative weighting of the BRA factors was approximately equal.
(B) Weighting of FRA Factors
In the analysis of GM, the relative weighting of the FRA factors was approximately equal.
(C) Weighting of the BRA and the FRA
In the analysis of GM, the BRA carries greater weight than the FRA.
Notes:
All figures are in U.S. dollars unless otherwise noted.
Morningstar DBRS applied the following principal methodology:
Global Methodology for Rating Companies in the Automotive Manufacturing and Supplier Industries (April 15, 2024), https://dbrs.morningstar.com/research/431161
Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024, https://dbrs.morningstar.com/research/431186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.
The following methodology has also been applied:
Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.
The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.
Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
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GENERAL MOTORS COMPANY 
