GM and Ford Get Ratings Lowered By S&P
Standard & Poor’s lowered its ratings on General Motors and Ford debts to “junk” status.
Both companies’ shares dropped at least 5% pushing down the overall market as well.
The news stunned the markets, coming one day after a bond rally prompted by news that billionaire investor Kirk Kerkorian is planning to double his stake in GM.
S&P said Kerkorian’s announcement isn’t a factor in its downgrade, although it conceded his bid represents an “additional uncertainty.”
“This is the beginning of the end of the U.S. auto industry as most people have come to know it,” says Egan-Jones Ratings managing director, Sean Egan. “In another two years, we’re likely to see substantial layoffs and bankruptcy filings by possibly one or both of these companies and massive restructurings of most of the U.S. auto manufacturers.”
GM obviously wasn’t pleased with S&P’s rating downgrade, but the company said that GMAC, has sufficient funds for its operations “for the foreseeable future.”
“Clearly, GM has many challenges in North America, but the company is moving aggressively to address these challenges,” said GM.
These new “junk” ratings may cause GM and Ford to have to face higher interest rates to get enough buyers for their bonds.