Automaker Shares Fall as S&P Warns May Cut Ratings

In another blow to beleaguered U.S. automakers, Standard & Poor's on Friday said it may cut its ratings on Ford Motor, General Motors and Chrysler, citing financial damage resulting from high gasoline prices.


Bonds and shares of Ford and GM extended their losses, while the cost of protecting their debt with credit derivatives rose.

S&P said it was concerned about cash outflows from all three automakers as high gasoline prices erode demand for sport utility vehicles and pickups.

The "dire state" of the vehicle finance market was also worrisome, S&P said.

The rating agency also said it may cut its ratings on automaker finance units Ford Motor Credit and DaimlerChrysler Financial Services Americas, as well as GM's 49 percent-owned finance affiliate GMAC.

The rating warning came after Ford said it would post a deeper loss for its auto businessthis year and warned it would be difficult to avoid a loss in 2009. That was a weaker outlook than Ford offered just last month.

"All of the factors behind Ford's weaker guidance also apply to the other U.S.-based automakers," S&P said in a statement.

Moody's Investors Service changed its outlook on Ford and its finance arm to negative from stable, indicating a rating downgrade is more likely over the next 12 to 18 months. Moody's now rates Ford "B3," the sixth-highest junk rating.

Sales of light trucks and SUVs, historically key profit centers for the automakers, have plunged as consumers shift to more fuel-efficient cars.

"Although these segments have been weak for some time, the exodus of demand that began in April, caused by escalating gas prices and consumer preferences for smaller vehicles, is gathering speed," S&P said in a statement.

S&P rates Ford, GM and Chrysler "B," the fifth-highest junk rating.

Ford's shares were down more than 8 percent, while GM's shares fell about 7 percent on the New York stock exchange.

Automakers' bonds, hurt by Ford's lowered guidance, extended losses. Ford Motor Credit's 8 percent notes due in 2016 fell to 76 cents on the dollar, down from 78 cents before the rating warning and about 79 cents on Thursday, according to MarketAxess.

GM's 8.375 percent bonds due 2033 fell to 65 cents on the dollar, down from 66 cents before S&P's warning and 67.5 cents on Thursday, according to MarketAxess.

The cost of protecting GM's debt with credit default swaps for five years rose to 27.25 percent in an upfront payment, plus annual premiums of 500 basis points, up from 24 percent upfront and 500 basis points annually on Thursday, according to data from CMA DataVision.

That means is now costs $2.725 million upfront, plus $500,000 annually to protect $10 million of GM's debt.

Ford's five-year credit default swaps rose to 24.5 percent upfront, plus 500 basis points annually, up from 21.25 percent upfront plus 500 basis points on Thursday, according to CMA DataVision.