Standard & Poor’s on Wednesday reportedly said weak auto profits this year at General Motors were unlikely to warrant a debt rating downgrade, but it may cut the rating closer to junk over the next two years if profits from GM’s auto business fail to improve.

Reuters noted that GM is struggling with swelling inventories, falling market share, huge health-care liabilities, a brutal price war, and an aging line-up of cars and trucks and a downgrade, now widely expected in the bond market as the economy shows signs of slowing down, could raise the company’s borrowing costs.

A weak second half is already reflected in GM’s ratings, S&P reportedly said as it affirmed GM’s triple B ratings and the company’s negative outlook. Reuters noted that GM’s profit in 2004 has mostly come from mortgages and car loans instead of vehicle sales.

S&P also affirmed Ford Motor Co.’s ratings, the report said, adding that the ratings agency keeps Ford on the edge of junk status at “BBB-minus” with a stable outlook, but said on Wednesday it would not likely take any action on Ford ratings for the next two years. S&P also raised DaimlerChrysler’s ratings outlook.

Reuters noted that GM’s outlook, which reflects the possible direction of a company’s ratings over the next two years, has been negative since April 2003. The world’s largest automaker has a debt rating one step above Ford and two steps above junk. A junk rating is below investment grade.

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“It shouldn’t be a surprise to anyone that it’s not a pretty picture with respect to GM and the auto business in the second half. So it becomes a question what lies thereafter,” Scott Sprinzen, lead auto analyst at S&P in New York, told Reuters.

If the financial performance of GM’s auto unit does not seem set to improve, S&P could cut the company’s ratings, but ratings would only likely be cut by one notch, Sprinzen reportedly said on a conference call.

But raising concerns about the performance of the company in 2005 and 2006 seems to indicate that S&P is watching GM carefully now, Sasha Kamper, senior fixed income analyst at Principal Global Investors, told the news agency.

“It seems like they wanted to alert the market that GM is on a short leash,” Kamper reportedly said.

For DaimlerChrysler, rated “BBB”, the threat of a downgrade receded on Wednesday as the company’s rating outlook was raised to stable from negative, Reuters said. The ratings agency cited Chrysler’s turnaround and continued improvement in the company’s commercial vehicle division as reasons for the stable outlook.