Fitch cuts GM, Chrysler deeper into junk; reviews Ford

Automotive News | June 25, 2008 - 2:15 pm EST

NEW YORK (Reuters) — Fitch Ratings today cut General Motors’ and Chrysler LLC’s ratings deeper into junk, citing weaker sales, high fuel prices and a sluggish economy.

Fitch also said it will review Ford Motor Co. and Ford Motor Credit ratings over the next six weeks. The review could also result in a downgrade.

Despite the rating action, GM and Ford stock and bond prices rose slightly on Wednesday after suffering heavy losses earlier this month.

The three big U.S. automakers are struggling with a deepening slump in auto sales amid a consumer exodus from pickup trucks and sport utility vehicles due to record high gasoline prices. Standard & Poor’s last week said it also may downgrade the three companies.

Fitch cut the ratings of GM and Chrysler by one notch to "B-minus," six levels below investment grade from "B" with a negative outlook.

A rise in demand for fuel efficient vehicles has hurt GM’s market position and additional restructuring of the company will be required, Fitch said in a statement.

"GM’s product portfolio remains misaligned with market demand," Fitch said.

The downgrade follows the announcement by the No.1 U.S.-based automaker on Monday that it would take a series of steps — from cutting production of trucks to offering aggressive incentives — to combat the drop in demand for large vehicles.

The rating agency estimated that GM may suffer cash drains exceeding $10 billion this year and would need to raise new capital over the next 18 months to maintain a comfortable cash position of $12 billion to $14 billion.

Another downgrade could come if GM dips below $15 billion in cash, Fitch said.

The embattled automaker ended the first quarter of 2008 with $23.9 billion in cash, according to a Bank of America report.

Regarding Chrysler’s rating cut, Fitch also cited an "unrelenting rise" in commodity prices, primarily steel.

The rating agency said Ford is unlikely to maintain its current "B" rating because of industry and economic pressures and said its review would depend on the performance of the automaker’s financing unit, Ford Motor Credit.

Ford Motor Credit’s rating could fall to "CCC," eight levels below investment grade, Fitch said.