Standard & Poor's Corp. cut to "junk" status the credit ratings of General Motors Corp. and Ford Motor Co. on Thursday, citing an alarming loss in market share for the two biggest U.S. automakers and their heavy dependence on slumping sport utility vehicle sales.
The downgrades, which mean S&P considers the companies' debt to be below investment grade in quality, were another blow to GM and Ford's images on Wall Street.
And although the cuts to junk status had been anticipated for months, the moves still jarred financial markets -- coming just a day after Los Angeles billionaire Kirk Kerkorian boosted optimism about GM by offering $868 million to more than double his stock holdings in the firm.
GM stock, which soared $5.03 on Wednesday, dropped $1.94 to $30.86 on Thursday -- a 6% decline that pushed the price slightly below Kerkorian's $31-a-share bid for more shares. Ford stock fell 46 cents to $9.70, a decline of almost 5%. Both trade on the New York Stock Exchange.
GM and Ford are the biggest companies to have their credit lowered to junk status, exceeding WorldCom Inc. in 2002.
At S&P, one of the nation's three major credit-rating firms, auto industry analyst Scott Sprinzen called GM's and Ford's continuing slide in U.S. market share "quite alarming" and expressed concern about the sharp decline in SUV sales, which for years have provided most of their automotive profits.
S&P cut the long-term debt ratings of GM and its finance arm, General Motors Acceptance Corp., two notches to BB, the second-highest junk rating. The outlook on the new rating is negative, signaling that another downgrade in the next 24 months is possible.
S&P also cut Ford's and Ford Motor Credit Co.'s long-term credit ratings one notch to BB-plus, the highest junk rating, also with a negative outlook.
GM last had top AAA ratings from S&P in 1981; for Ford it was 1980.
A junk rating means GM and Ford could pay much higher interest costs to borrow money but doesn't indicate that the companies face a dire financial situation in the short term.
Indeed, Sprinzen noted that both companies had ample cash for at least the next several years and said there was no "immediate risk of bankruptcy."
Ford said it disagreed with the lowered rating, and GM said it was disappointed. Both companies cited their cash holdings as evidence of financial strength.
