DETROIT - 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.
