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S&P Lowers Automakers' Credit Ratings

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The Associated Press

Published: August 1, 2008

NEW YORK - Standard & Poor's Ratings Services on Thursday cut its ratings for all three of the U.S.-based automakers further into junk status, citing worries about their mounting cash losses and the continued deterioration of the U.S. auto market.

S&P lowered its ratings for General Motors Corp., Ford Motor Co. and Chrysler LLC all to "B-" from "B." It also lowered its ratings on the trio's respective financing arms - GMAC LLC, Ford Motor Credit Co. and DaimlerChrysler Financial Services Americas LLC - to "B-" from "B."

In addition, the ratings service cut its corporate credit rating on FCE Bank PLC, Ford Credit's European bank, to "B" from "B+."

GM shares fell 33 cents to close at $11.07, and Ford slipped 4 cents, to end at $4.80.

S&P Credit Analyst Robert Schulz said the steep drop in new vehicle sales and the ongoing shift in consumer preferences toward smaller, more fuel-efficient vehicles, is going to make it harder for the automakers to restructure themselves and force them to burn through their cash reserves.

Schulz pointed to Toyota Motor Corp. - which was not included in the ratings changes but recently cut its global sales forecast blaming lower U.S. demand for trucks and SUVs - as an example of how tough the economic environment has become.

"It's really a different world from the last several years," Schulz said.

S&P said it expects U.S. vehicle sales, especially those of trucks and SUVs, to continue to weaken and result in higher cash losses for all three automakers throughout the year.

The ratings service said it expects U.S. vehicle sales to drop to 14.4 million units this year, down from 16.1 million in 2007. Demand is expected to continue to fall next year, with industrywide sales expected to total just 14.1 million units.

But if oil prices keep rising and the housing market continues to struggle, there is a chance that sales could fall to as low as 13.6 million units this year and 11.7 million next year, S&P said.

Despite the tough economic road ahead, Schulz said he doesn't expect any of the three to file for bankruptcy protection.

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