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GM
Strengthens Lead in Race to Bankruptcy: Moody's Cuts GM's Credit a Notch Deeper
into Junk
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Visitor support makes this site possible. Please shop often via Auto on Info. Thank you. Men's Fine Tie Clips and Ties Forzieri tie clips Men's Ties by Versace Men's Ties by Valentino To view more men's ties, icons, and search phrases, click here. Men's Watches Men's Watches by Gucci Men's Watches by Movado Men's Watches by Cartier To view more men's watches, icons, and search phrases, click here. Fine Women's Watches Women's Watches by Cartier Women's Watches by Movado Women's Watches by Gucci To view more fine women's watches, icons, and search phrases, click here. Fine Women's Perfumes Must II de Cartier by Cartier for women Allure by Chanel for women Zen Classic by Shiseido for women To view more fine women's perfumes, icons, and search phrases, click here. Auto on Info February 2006
GM Strengthens Lead in Race to Bankruptcy: Moody's Cuts GM's Credit a Notch Deeper into Junk
By James B. Bleeker
On February 21, 2006, Moody's Investors Service cut its creditworthiness rating of General Motors Corporation's long-term debt one notch deeper into junk, from "B1" to "B2." The following table puts GM's creditworthiness and the General Motors-Ford race to bankruptcy into perspective.
Table I S&P, Fitch, and Moody's Long-Term Debt Ratings as of February 21, 2006 Ratings Automobile Manufacturers S&P, Fitch Denominations Moody's Denominations Investment Grade Ratings AAA Toyota Motor Corporation AA+ AA AA- A+ Honda Motor Company A A- BBB+ Baa1 BBB Baa2 DaimlerChrysler AG BBB- Baa3 Junk Grade Ratings BB+ Ba1 Ford Motor Company BB Ba2 BB- Ba3 Ford Motor Company, Ford Motor Company B+ B1 General Motors Corporation B B2 General Motors Corporation, General Motors Corporation B- B3 CCC+ CCC CCC- Delphi Corporation (GM's jettisoned aggregation of parts plants is in Chapter 11 bankruptcy.) D For more than a decade, U.S. consumers have been abandoning General Motors' and Ford's products for the quality products of Toyota Motor Corporation and Honda Motor Company, and in the past two years the pace of this abandonment has quickened, maybe doubling or more. (See Table II of "In 2005, U.S. Consumer Shift to Quality Continues at Quickened Pace, But GM and Ford Avoid Disastrous Market Share Plunges with Big Discounts and Huge Financial Losses: Is a Big Three Product Worth a Dime?," Auto on Info, January 2006.) As it would likely take decades of determination and effort to significantly narrow the quality gap between the Big Two and the Reliable Two (see The Bottom Line on Auto Reliability), GM and Ford are left with but one choice: Cut productive capacity to match dropping demand. Although this is normally a clear-cut business solution that puts things back into balance, it's not for these two. GM's and Ford's current contract with the United Auto Workers obligates them to pay furloughed employees most of their wages (or all of their wages, as reported in some newspapers, but denied by a Ford employee on a Minnesota Public Radio call-in broadcast), whether working or not. As a result, General Motors and Ford may exhaust their cash before their contract with the UAW expires in 2007. Without cash to pay their bills, GM and Ford would be forced into bankruptcy reorganization. Once there, their bonds may be converted to shares (preferred, common, or some combination of both), the market value of each of which may be but a small fraction of the face value of the preceding bond.
To help cope with the prospective cash crunch, Ford is selling its Hertz Corporation rental division and General Motors is trying hard to unload a majority stake in its GMAC finance division.
The gap between GM's credit ratings and those of Ford reflects a common assessment by the credit rating services that GM still holds a lead in its sprint to insolvency.
The following poll permits the reader to express his assessment on GM's and Ford's likely first bankruptcy filing.
To view responses to the above poll, click here
Sources for rating cut: "Moody's Reduces GM's Debt Rating Further," Dee-Ann Durbin, the Associated Press, February 21, 2006, available at Yahoo! News, and "Moody's Cuts GM's Rating Deeper into Junk," Karen Brettell, Reuters, February 21, 2006, available at Yahoo! News
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