Forbes reports GM and Ford bonds "junk"

Nomen Nescio · May 6, 2005

Associated Press

Update 5: S&P Cuts GM, Ford Credit Ratings to 'Junk'
05.05.2005, 05:17 PM

A New York rating agency declared billions of dollars of debt owed by
General Motors and Ford to be "junk" on Thursday, a significant blow that
will increase borrowing costs and limit fund-raising options for the
nation's two biggest automakers.

Shares of GM fell almost 6 percent and Ford shares declined 4.5 percent
after Standard & Poor's Ratings Services downgraded the debt to below
investment grade, which is commonly known as junk or high-yield status.

Both companies responded by saying they face no cash crunch and that they
disagreed with the decision by S&P analysts.

Still, it amounts to one more hit for two automakers that are losing
market share at home to Asian competitors, seeing sales soften for their
most profitable models and facing enormous health care and post-retirement
liabilities. GM's U.S. sales fell nearly 5 percent in the first four
months of the year and Ford's sales declined 4.2 percent.

In particular, S&P said No. 1 General Motors Corp. and No. 2 Ford Motor
Co. can no longer count on generating enormous profits from their sport
utility vehicle lineups. Besides higher gas prices, a key factor in
slumping SUV sales is the proliferation of smaller, car-based utility
vehicles called crossovers - models that are available from most major
automakers today.

"GM's financial performance has been heavily dependent on the profit
contribution of its SUVs," said S&P credit analyst Scott Sprinzen.
"Recently, though, sales of its midsize and large SUVs have plummeted, and
industrywide demand has evidently stalled."

GM and Ford bonds also fell in value Thursday, and while the companies say
they have no immediate need for large new debt sales, analysts said they
can expect to pay substantially higher interest rates on funds they borrow
in the future.

The numbers involved already are enormous: GM paid about $12 billion in
interest on debt last year and Ford's tab totaled about $7.1 billion. GM's
consolidated debt as of March 31 was $291.8 billion and Ford's totaled
$161.3 billion, S&P said.

The two other major debt rating agencies, Moody's Investors Service and
Fitch Ratings, still rate the debt of both GM and Ford as investment grade.

Even though it acted alone, the move by S&P will force many institutional
investors to reshuffle their portfolios, causing massive selling of GM and
Ford bonds at a lesser value. That's because some institutions are banned
from dealing in high-yield bonds, an asset class known to trade with more
volatility and greater risk of default than investment-grade securities.

S&P said its downgrade of GM's long-term debt reflects its conclusion that
the current strategies of GM Chief Executive Rick Wagoner and his
management team may not be effective in dealing with the automaker's
competitive disadvantages. S&P also cited as concerns GM's European
operations, which have been unprofitable since 1999, and weaker demand in
what had been a sizzling Chinese market.

However, S&P noted GM should have no difficulty accommodating "near-term
cash requirements." It also said GM's highly profitable GMAC finance arm
still likely has "sufficient funding flexibility" to support GM even
without an investment-grade rating.

In a statement, GM said it was disappointed with S&P's decision but that
it and its finance arm have adequate cash and liquidity to fund their
operations "for the foreseeable future."

GM said it had $19.8 billion in cash at the end of the first quarter, and
GMAC had $18.5 billion in cash and securities. "Clearly, GM has many
challenges in North America, but the company is moving aggressively to
address these challenges," the company said.

S&P said Ford could be hurt financially by increasing competition from GM
and Toyota Motor Corp. in the pickup category. Ford's best-selling
vehicles are its F-Series lineup, most notable the full-size F-150 pickup.

Another hindrance for Ford is its relationship with its struggling former
parts subsidiary, Visteon Corp. "We assume Ford will have to subsidize in
some fashion a radical restructuring of Visteon's operations, at a cost
that could well be greater than all the direct support it has already
extended," S&P said.

Last month, Ford posted earnings of $1.2 billion, down from $1.95 billion
the year before. The company also predicted a tough second quarter, with
earnings break-even at best.

Don Leclair, Ford's executive vice president and chief financial officer,
said in a statement the company disagreed with S&P's action. "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," Leclair said.

The announcement came only a day after billionaire Kirk Kerkorian jolted
GM shares to their largest one-day percentage increase in more than 40
years by offering to invest nearly $870 million in the automaker to boost
his stake to about 9 percent.

GM shares dropped $1.94, or 5.9 percent, to $30.86 while Ford shares fell
46 cents, or 4.5 percent, to $9.70 in trading Thursday on the New York
Stock Exchange.

AP Business Writer Joe Bel Bruno contributed to this report.
Click to expand...

WE HAVE DEGENERATED FROM A PRODUCING COUNTRY TO A CONSUMING COUNTRY. We
need to start domestic production of every consumer item in the inventory:
from leather wallets to shoes to supersonic jets. IMPORT CHEAP HEALTH CARE
LABOR (DOCTORS, NURSES), NOT IMPORT CHEAP GOODS. The cost of American-made
shoes will not break you. Health care will. Our emphasis is all wrong.
You already know Toyotas were cheap when they broke into the market; now
that they've broken GM and Ford, Toyotas cost every nickel as much as a
good old American car. This is an axiom: No matter what you hear, the
quality of an American car is no better and no worse than a German,
Japanese, or any other foreign make. That includes the legendary marques
Rolls Royce, Jaguar, Mercedes-Benz and BMW.

soxinseven · May 6, 2005

Blah blah...

ZZZZZZZZZZZzzzzzzz.....

frenchy · May 6, 2005

,, IMPORT CHEAP HEALTH CARE
LABOR (DOCTORS>>

All our doctors are from India already!

Forbes reports GM and Ford bonds "junk"

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Forbes reports GM and Ford bonds "junk"

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