GM May Face Another Rating Cut

General Motors Corp. was warned Monday of another possible cut in its debt rating, a day after the world’s largest automaker said it would spend about $2 billion to end its troubled alliance with Fiat of Italy.

Moody’s Investors Service changed GM’s credit rating outlook to negative from stable, citing the cost of GM’s separation from Fiat and the “increasing challenges in its competitive and operating environment.”

A negative outlook is foreboding, suggesting that GM’s bond rating could move lower in the next 12 to 14 months to the verge of junk -- or below-investment-grade -- status. That could boost the company’s borrowing costs. GM already is struggling with rising healthcare costs and falling U.S. market share.

Moody’s rating on GM is two notches above junk. Standard & Poor’s, which affirmed its rating Sunday, has it one notch above junk.

GM’s bonds eased in price Monday, pushing yields up.

Scott Sprinzen, S&P;’s auto analyst, said he viewed the GM-Fiat divorce as “a neutral transaction” because GM managed to dispel a lot of uncertainty in exchange for its payoff.

But adding to jitters about GM’s bond rating, Sprinzen said S&P; believed “it could be difficult for GM to improve earnings beyond 2005.”

GM shares, which have fallen 25% in the last 12 months, edged up 10 cents to $37.24 on the New York Stock Exchange.