S&P; Lowers Debt Rating of Big Three Auto Makers

Some $230 billion in debt held by the Big Three U.S. auto producers was downgraded Wednesday by Standard & Poor’s, which cited the severe financial pressures on the domestic auto industry.

The action dropped the S&P; debt rating for No. 3 Chrysler Corp. to the equivalent of junk-bond status, a step that will worsen the strains on Chrysler by significantly boosting its cost of borrowing money.

Chrysler’s senior debt and that of its finance subsidiaries--a total of $23 billion in indebtedness--was lowered a single notch to BB-plus from BBB-minus. The action classifies Chrysler’s debt as non-investment grade.

General Motors Corp. and its finance arms saw $93 billion of senior debt lowered two notches to A from AA-minus. At Ford Motor Co., where debt totals $110 billion, the ratings of senior debt held by the parent company and several finance arms were also dropped two notches to A from AA-minus.

The action was no surprise, because all three companies have gone deeply into the red as sales and production tumbled in the wake of Iraq’s invasion of Kuwait. They had been on S&P;’s “credit watch” since Jan. 9. On Tuesday, GM became the first to cut its common stock dividend by slashing the payout 47%.

Citing this and other retrenchments and the cyclic nature of the auto industry, GM Treasurer Charles E. Golden said Wednesday that he didn’t think a rating downgrade “of this magnitude” was warranted.

For GM, it is the lowest rating ever, according to an S&P; spokesman. The world’s biggest car maker held a AAA rating until 1981. The designation was lowered in the 1981 recession, in 1986 and 1987, when GM made several big acquisitions.

Ford, a AAA company until 1980, bottomed out at BBB-plus two years later. The rating rose again through the 1980s until it was downgraded last year to AA-minus after Ford’s $2.5-billion purchase of Jaguar.

Chrysler remains five notches above the CCC rating it was branded with in 1980, as the auto maker flirted with bankruptcy before a government bailout. Despite its dramatic recovery, Chrysler’s debt never climbed above BBB.

Its new BB-plus rating puts Chrysler one grade above such well-known corporate names as Time Warner and RJR Nabisco, said Solomon Samson of S&P.; Both firms were downgraded on account of heavy debt taken on through takeovers.