Tuesday, March 22, 2005

Squeeze On General Motors Continues

General Electric used a clause in its contract with General Motors to exit a $2 billion financing agreement. The arrangement paid GMs' suppliers early, in effect providing a line of credit for the automaker. But a downgrade in GM credit gave GE an out.

"Its contract allowed it to pull out if the carmaker's credit rating fell to BBB minus, the lowest notch of investment grade, with a negative outlook - as it was last week by Standard & Poor's'" reported FT.com.

The move will put pressure on the mortgage division of GM as it will have to pick up the slack. "GM Acceptance Corp, the finance arm that will take over the scheme."

The mortgage market is already feeling the effects. "The carmaker’s benchmark bonds were sharply lower in early trading in New York. Yields jumped more than half a percentage point as investors reacted to GE Capital’s decision."


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