Standard & Poor’s Ratings Services has cut its corporate credit ratings to junk status for both General Motors Corp. and Ford Motor Co., a move the Associated Press (AP) said was a significant blow that will increase borrowing costs and limit fund-raising options for the two biggest car makers in the United States.
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Shares of both companies fell 5 percent or more after Thursday’s downgrades, and the news sent the overall market lower, AP noted.
The Associated Press said the decision by one of the nation’s most respected ratings agencies comes as the two iconic American car makers are losing market share at home to Asian rivals, seeing sales slow for their most profitable models and are facing enormous health care and post-retirement liabilities.
The credit ratings agency reportedly said its downgrade of GM’s long-term rating below investment grade status reflects its conclusion that management’s current strategies may not be effective in dealing with the car maker’s competitive disadvantages.
In a statement cited by the Associated Press, GM said it was disappointed with S&P’s decision but that it and its finance arm, GMAC, have adequate cash and liquidity to fund their operations “for the foreseeable future.”
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By GlobalDataAccording to AP, S&P said its greatest immediate concern for Ford is the prospect that its sport utility vehicle business will not be able to generate the profitability it’s enjoyed historically – Ford’s financial performance has been heavily dependent on the earnings of its SUVs but sales of midsize and large SUVs have plummeted of late, S&P said.
“We disagree with S&P’s action today,” Don Leclair, Ford’s executive vice president and chief financial officer, told the Associated Press, adding: “We’re disappointed that it discounts our considerable liquidity and our access to diverse funding sources, as well as the recent successes of our new products.”
