Automotive News | May 7, 2008 - 3:10 pm EST

Fitch says GM, Ford face heavy cash drains
 

DETROIT (Reuters) — General Motors and Ford Motor Co. will continue to face heavy cash drains in 2008 and are expected to burn cash through 2009 unless industry sales rebound, Fitch Ratings said on Wednesday.

GM, which lost a combined $51 billion over the past three years, faces the risk of another ratings downgrade this year, Fitch said in a report. The ratings agency said GM operating losses in the North American market and restructuring costs were likely to erode liquidity for the top U.S. automaker.

By contrast, Fitch said Ford had demonstrated "considerable progress" in its restructuring and could be upgraded to a stable outlook this year if the trend continued. Ford posted net losses of $2.7 billion in 2007 and $12.6 billion in 2006.

"In the absence of a rebound in economic conditions and industry sales through 2009, both companies are likely to remain cash-flow negative during this period," Fitch said.

"(GM) liquidity has been supported by numerous asset sales, but the lack of further asset sales could result in a downgrade of GM in 2008."

GM posted a first-quarter loss of $3.25 billion last week, weighed down by charges for troubled former subsidiaries — finance company GMAC and bankrupt auto-parts supplier Delphi Corp.

Fitch said a 9-week-old strike at auto-parts supplier American Axle & Manufacturing Holdings Inc., ongoing strikes at GM’s own plants and its continued exposure to Delphi would delay cost reductions and result in a consolidated cash drain exceeding $8 billion this year.

Fitch said that although Ford was unlikely to return to start generating positive cash flow until the market for pickup trucks recovers, it will benefit from the launch of several new models this year, including the new F-series pickup.

The recent disclosure that billionaire investor Kirk Kerkorian has acquired a 4.7 percent stake in Ford and hopes to increase that holding to 5.6 percent, was not a factor in the rating, Fitch said.

"Although Kerkorian has historically been an activist investor across his investments, in the case of Ford, the interest of bondholders and equity holders are currently very much aligned," it said.

GM, Ford and Chrysler LLC are in the midst of restructuring efforts aimed at returning money-losing U.S. operations into profitability, including cutting jobs and shutting down plants.

A consumer shift toward smaller, fuel-efficient cars and a slump in industry-wide sales has added urgency to the restructuring efforts by the Detroit-based automakers, which have been hit hardest due to their truck-heavy lineups.

Separately, Fitch on Wednesday cut Chrysler’s issuer default rating to "B" from "B+", citing a decline in unit sales volumes and projected revenue.