General Motors, the largest US automaker and the third-biggest in the world, agreed this week in a deal with a group of activist investors that it would move to return $10 billion to shareholders in just two years.
But the agreement could jeopardize the completion of a key task – reach a top-tier credit rating that would improve the prospects of its rising auto finance division. The carmaker has been expanding its GM Financial unit through purchases and aggressive marketing to dealers – jumping the bandwagon of in-house lending that offers discounted financing on new cars and trucks for both retail buyers and their own dealers. Having a single A credit rating would lend GM increased flexibility to fund GM Financial with lower costs. Currently the automaker is three steps away from that rating and officials of Standard & Poor’s Ratings Services and Moody’s Investor Service hinted this week the next update of the rating could be postponed. That would come mainly because of the week’s announcement that GM plans a $5 billion share buyback and a dividend increase that would see another $5 billion divested back to investors during a two-year period.
Both GM chief executive Mary Barra and president Dan Ammann believe holding an investment-grade balance sheet is key to the ocmpany’s growth strategy, with the latter commenting “a solid investment grade credit rating is a critical pillar of our strategy” for GM Financial. Chief financial officer Chuck Stevens added that GM sees a negative impact on its current ratings as highly unlikely – and the credit agencies support that view, adding the carmaker will hold on to the current ratings for a longer than forecasted period now.