GM, Ford Outlook Downgraded
General Motors Corp. and Ford Motor Co., battling smaller rivals for their most lucrative markets in a slowing U.S. economy, faced new questions about their credit-worthiness Tuesday after a major rating agency adopted a negative outlook toward the world’s two largest auto makers.
Standard & Poor’s revised its outlook on GM and Ford to negative from stable, citing “heightened concerns” about their ability to compete. The action shook the market value of long-term debt issued by GM, Ford and their units. The companies have nearly $300 billion of debt.
Rivals have been bringing out new sport-utility vehicles, light trucks and other big-ticket vehicles, making GM and Ford work harder to defend their most profitable markets.
Detroit-based GM’s ratings could fall “within the next year” and Dearborn, Mich.-based Ford’s “within the next few years” if they don’t address their problems and keep their financial flexibility, said Scott Sprinzen, head of S&P;’s auto ratings team.
“We’re not poised to do anything right away with Ford” despite the potential “lasting impact” of the Firestone tire problem, Sprinzen said in a conference call.
In contrast, he said, GM is “relatively weak,” in part because its market share losses have been steeper. “We don’t see much room for further disappointment.”
The outlook revisions also affect the auto makers’ finance arms, General Motors Acceptance Corp. and Ford Motor Credit Co.
A negative outlook revision suggests conditions are present that make a future downgrade possible, not that a downgrade is likely or imminent. Downgrades or threats of downgrades often raise corporate borrowing costs.
Elizabeth Acton, Ford’s vice president and treasurer, said Ford was disappointed with the revision. She said the company is “still very well positioned to raise substantial sums of capital.”
A spokeswoman for GM, Catherine Dunsby, said the concerns S&P; expressed “have certainly been on our radar screen.” She did not comment on the revision.
Waning consumer confidence and rising energy prices are cutting demand for new vehicles. GM, Ford and the other Big Three auto maker, DaimlerChrysler, have announced plans to idle at least two plants for part of this month. DaimlerChrysler plans to shut several plants and eliminate 26,000 jobs from its Chrysler division.
GM shares closed on the New York Stock Exchange on Tuesday at $58.12, up 86 cents. Ford shares closed on the Big Board at $28.74, up 29 cents.
GMAC’s 6.75% five-year notes and Ford’s 6.875% five-year notes were bid Tuesday to yield a respective 1.76 and 1.9 percentage points more than five-year Treasuries. The yield gaps widened 0.05 to 0.08 percentage points after S&P;’s actions. Five-year Treasuries yield 4.88%.
Ford and GM have medium investment grades. S&P; rates their senior debt “A,” its sixth-highest grade, and their short-term debt “A-1,” its second highest.
Moody’s Investors Service rates the auto makers’ long- and short-term debt “A2” and “Prime-1,” roughly equivalent to S&P;’s ratings. Its rating outlooks for GM and Ford are stable. .
