GM Cost-Cutting Plans Squash Protection Price

The five-year credit-default swap spread on General Motors Acceptance Corp. pulled in last week after parent company General Motors Corp. said it would seek healthcare concessions from the United Auto Workers, a union which represents many GM employees.

  • 17 Jun 2005
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The five-year credit-default swap spread on General Motors Acceptance Corp. pulled in last week after parent company General Motors Corp. said it would seek healthcare concessions from the United Auto Workers, a union which represents many GM employees. The news drove down the price of protection on GMAC, the financing arm of GM, to 430 basis points Wednesday from 500bps the week before.

GMAC's spread ballooned last month to 720bps following the auto-maker's downgrade to junk status by Standard & Poor's and Fitch Ratings and poor earning reports. An S&P report issued last month noted, "The company has significantly reduced the size of its workforce, but total personnel costs have risen, due in part to the soaring cost of its relatively generous health insurance benefits." The agency also expressed concern over inflation and its impact on health care costs.

Despite last week's meeting between GM and the United Auto Workers, which gave market players hope that the union would help alleviate some of GMAC's costs, and the Labor Department's positive inflation report, S&P spokesman John Piecuch said, "We haven't changed any opinions or outlooks on the company." The CDS trader added, "Unless [GM] gets dramatic concessions, I don't see its spread coming in that much more."

  • 17 Jun 2005

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2 Citi 232,791.64 969 7.71%
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4 Barclays 184,008.42 751 6.10%
5 HSBC 144,676.82 801 4.79%

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2 Credit Agricole CIB 27,347.56 115 6.83%
3 JPMorgan 23,350.32 62 5.83%
4 Bank of America Merrill Lynch 22,698.09 61 5.67%
5 UniCredit 19,891.92 110 4.97%

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1 JPMorgan 8,160.55 49 10.10%
2 Morgan Stanley 7,744.92 38 9.59%
3 Goldman Sachs 6,966.15 37 8.62%
4 Citi 5,856.44 44 7.25%
5 UBS 4,820.17 25 5.97%