dropping like a stone
S&P cuts GM, Ford debt ratings to 'junk' status
NEW YORK (Reuters) — Standard & Poor's cut Ford Motor's (F) and General Motors' (GM) debt ratings to junk status Thursday in a move that will narrow the automakers' avenues for raising money as they struggle with global competition and rising healthcare costs.
Shares of both companies fell 5% or more after Thursday's downgrades, and the news sent the overall market lower.
The cuts almost surely will cause both companies' borrowing costs to rise as they have to offer higher yields to attract investors. The downgrades include the credit financing arms of both automakers.
The decision by one of the nation's most respected ratings agencies comes as the two iconic American automakers are losing market share at home to Asian automakers, seeing sales soften for their most profitable models and are facing enormous health care and post-retirement liabilities.
S&P said its downgrade of GM to non-investment-grade status reflects its conclusion that management's current strategies may not be effective in dealing with the automaker's competitive disadvantages, which include rising health care costs and billions of dollars in post-retirement liabilities. But it said the company should have no trouble meeting its cash requirements in the near term.