S&P Junks GM, Ford

[Dover]

S&P Junks GM, Ford

By Nat Worden
TheStreet.com Staff Reporter
5/5/2005 3:43 PM EDT

In moves that were seen by many as inevitable, Standard & Poor's on Thursday lowered its ratings on the debt of General Motors (GM:NYSE - news - research) and Ford (F:NYSE - news - research) to speculative grade, or junk, status.

Shares of both companies slid more than 5% in the wake of the cuts, one day after rallying when a private investor offered a rich price for a big slug of GM stock. The S&P downgrades also sent broader stock averages down as much as 1% and roiled corporate bond markets, where many fund managers will now be prohibited from owning GM and Ford.

"This is the beginning of the end of the U.S. auto industry as most people have come to know it," said Sean Egan, managing director of Egan-Jones Rating Co., an independent firm. "In another two years, we're likely to see substantial layoffs and bankruptcy filings by possibly one or both of these companies and massive restructurings of most of the U.S. auto manufacturers."

cont'd

http://www.thestreet.com/markets/natworden/10221988.html


________________________________________________________________

Moody's rates GM, Ford stock junk

August 25, 2005

BY BILL KOENIG
BLOOMBERG

Stock shares of General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, were lowered to junk by Moody's Investors Service.

Moody's lowered Detroit-based GM's rating two levels to Ba2 and the rating on its finance arm to Ba1. Dearborn-based Ford was cut one level to Ba1, one step below investment grade. Moody's also reduced its rating on Ford Motor Credit Co. to the lowest investment grade. The Ford cuts affect about $150 billion in debt, Moody's said in a statement Wednesday.

It's the second junk rating for Ford after Standard & Poor's lowered the company to non-investment grade on May 5. That will push the automaker out of the most widely followed investment-grade bond index by Lehman Brothers Holdings Inc. and could spark selling of the bonds....>>

http://www.freep.com/money/autonews/moodys25e_20050825.htm

[wuushew]

1. Buy (American made) Japanese cars

no tears here :nopity:

[Blue_Tires]

29. i'd rather support the automakers that use union labor n/t

[wuushew]

30. what is preventing unionization of these plants?

legally nothing.

The Big Three are politically corrupt, overpay their top brass and contribute to the destruction of the environment more so than their competitors.

The Japanese methods of long term investment horizions, R&D and co-operation should be a model welcomed in the United States.

[Blue_Tires]

31. a lot of foriegn automakers

like to open their new plants in antiunion states (SC, AL, MS, TX) the UAW gets shut out before the game even begins.

[gratuitous]

2. How long before GM sues Standard & Poor or Moody's?

As I recall, GM pulled its advertising from the L.A. Times when their automotive reviewer called GM's 20 mpg crapmobiles a bunch of 20 mpg crapmobiles. What petulant retaliatory move will GM make against Standard & Poor or Moody's for having the temerity to downgrade its stock?

[Dover]

5. They are moving toward bankruptcy and will reorganize, purge pensions

jobs, whole outdated factories, and other 'burdensome' stuff.

[daleo]

22. I agree, this is mostly about dumping pensions

Perhaps also getting rid of health care and busting unions. It could get very ugly in a year or two.

[UpInArms]

3. the era of corporate responsibility mirrors the

the GOP's era of accountability.

:argh:

[obxhead]

4. sell short for a nice profit?

[PunkPop]

6. Why wouldn't they be junk?

Things will get worse before they get better for the US automobile industry. That is how it works with them. The men who run these companies are greedy and incompetent.

Once again Japan is out front and has accurately predicted where the market is going - hybrids. They have a head start and Ford and GM will play catch up just like they did in the 80's. It's a pattern with them.

[Dover]

7. True........BUT this time the U.S. companies anticipated the competition

and have limited the number of Japanese cars allowed in the market. Toyota...sensing the tension with the U.S. companies...announced they will cut back further AND raise prices (lest the U.S. cut them out completely). So the U.S. companies knew about the oil hikes coming and limited consumer options to get around them. And the U.S. auto industry is served by this because of their plans to go through bankruptcy and purge their pensions and jobs and reorganize.

So between the auto and oil companies, they have the consumer in a bind. They have forced dependence on their product rather than allowing true market forces to take affect. And they expect to suppress our options for many years into the future.

[PunkPop]

8. Great. Now I'm even more pissed.

How can THEY limit the amount of Japanese cars in the market? I'm guessing through their bought-off operatives in government?

[Dover]

9. Check out this thread

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=159&topic_id=3029&mesg_id=3029

[PunkPop]

11. Interesting. Thanks.

You hit it on the head when you guessed that poster worked for an American car company. That was funny.

My father in law WILL NOT EVEN CONSIDER buying a foreign car. It's totally irrational.

[Dulcinea]

26. My parents are the same way.

No matter how much we tell them car companies are all multinational now & that Hondas & Toyotas are more American-made than their Oldsmobile, they won't listen.

[idlisambar]

33. Your parents are right

First of all, despite the presence of transplants, foriegn brand cars are still much more likely to have been imported. Second, even if the Honda or Toyota is assembled in the U.S. the share of imported components is greater and the machinery used to make the cars is typically imported. Third, the earnings go abroad. Fourth, foreign car company transplants are typically less unionized and recieve more genererous subsidies from local governments.

[underthedome]

35. U.S. car companies are UNION, Japanese are not, wake up!

Unions are Dems, fucking bullshit that anyone here hopes GM sinks.

(not directed at you idlisambar)

[idlisambar]

37. understand the frustration

I can understand why people would not be happy with GM and Ford, but it is ridiculous when Dems (or any Americans) start cheering for foreign car companies.

[krkaufman]

16. Hmmm... I wasn't aware of the externally-imposed limits on hybrid imports

Would you happen to have a link to more info on this?

[Dover]

23. Please read post #9 n/t

[stoplightcat]

10. Hybrid Myth

I wouldn't sit and give so much acclaim to the Japanese vehicle makers. Here's the little secret in the auto industry, Hybrids are making it to their second generation, where they are used for better performance, not to get 50 miles per gallon.

For example, the latest Honda hybrid, an Accord, has more horsepower than the non hybrid units. How much gas better does it get? About a mile per gallon, if that.

We're going to keep hearing about these wonderful hybrids, but the manufacturers including Japanese makers aren't looking at these to save the planet, they now have another tool to get more engine power at about the same current gas mileage rates.

[PunkPop]

13. Welcome to DU stoplightcat

No, I don't think they're looking at hybrids to save the planet.

They're looking at hybrids to make a profit and to better position themselves for coming trends so they can continue making a profit. They're smart that way, unlike US auto manufacturers like Ford and GM.

And evidently they're having a good deal of success.

[stoplightcat]

18. GM and Ford, etc.

Thanks for the welcome PunkPop! I don't want to write a long and boring post, but I know quite a good deal what's been going on with GM between my father in-law in the union and my father dealing with well, lets just say healthcare industry issues.

GM isn't going bankrupt, no matter what people think. This whole issue of healthcare killing the company is the same garbage that management pulled in the 70s and 80s. It's always the tool for the next contract with the unions. What I wanted to bring out was this talk of the car industry in bed with the government. The government is actually causing part of their woes (and in many other industries) and with many companies right now with healthcare. Let me quickly detail...

The government is requiring that companies allot a certain dollar amount for healthcare in their corporate numbers regardless of the being accurate. Take my father's company: They have health costs of $90 million per year. The government is mandating their number, which comes up to $160 million. The company only spent $90 million in costs, but they have to report it at $160 million and it affects their quarterly earnings, stock value, bond rating, and so-forth.

Much of the same is going on with GM, especially considering the size of the company and their actual health costs. Basically, these companies are all running around with bogus heath cost totals in their numbers. I know it sounds a bit bizarre, but it's accurate.

So, we hear about out of control health costs, well, yes and no. The good 'ol US government contributes to the problem greatly with this.

The one thing that I want to point out about the Japanese automakers bringing the public what they want, you're partly right. The public has wanted SUVs, etc. for several years, and contrary to the rising cost of gas, trucks continue to see an increase in sales. Most of the American passenger car sales continue to go down and trucks continue to expand in marketshare and sales. No matter what the price of gas has been, the demand has not declined. That's where the argument that the American carmakers aren't making what the American public wants isn't so accurate.

I don't have a preference for cars of any particular country, but I think that at times some people certainly overvalue the Japanese vehicles. The most ironic thing is that American motor companies developed hybrid technology and sold that to Toyota, Honda, etc. American automakers are dinosaurs when it comes to change, akin to what you said, but then again, that mirrors our society, we take a long time to change things in this country.

[PunkPop]

21. Interesting. I've never heard of that.

Do you have any links about this involuntary setting-aside of money for health care costs that don't exist? I would like to learn more. Seems like the bond rating agencies would be aware of this and take that into consideration.

I don't know the stats on demand or marketshare of trucks and SUVs, but the price of gas has only recently gone through the roof so I expect you'll start seeing a decline in the future.

I also have never heard that Toyota, Honda, etc use hybrid technology bought from US manufacturers. Do you have a source for that?

[wuushew]

15. Here is a handy hybrid cost calculator

it does not factor in tax incentives, resale value or insurance costs but even modest fuel efficiency improvements are beneficial from a financial and environmental standpoint over the life of the car.

http://www.mixedpower.com/modules.php?name=Gas_Savings

Also I fail to see the problem with doing more work with the same fuel consumption. That is simply another way of defining efficiency.

[rustydad]

38. Exactly right

Hybrids are way too hightec to be "efficient", they cost too much to make and service. There is no free lunch folks. The most efficient car that can be made will be low in creature comforts (cramped and no air conditioning), will be super light weight (500# or less), carry very little cargo, suffer greatly in collision with an arnold hummer, but could get over 100 mpg and cost less than 7000$. Bob

[rustydad]

36. No PP

Hybrids are not the answer. They are glorified high techno money loosers. They are sold in small numbers to the I-feel-good-now crowd. The companies sell them at a lose for PR. The real cost would make them energy loosers over their life time. The real energy efficient modes of transportation require a change in lifestyle. Bikes, small scooters, walking, mass transit, and staying home and recreating in the vegitable garden are real ways to help. The average American uses over a thousand gallons of fuel for personal uses a year. We need to reduce that to 100 gallons. Hybrids at best offer a 20-30% savings over most sedans. Not near enough. bob

[PunkPop]

39. Oh, I'm all for changing wasteful lifestyles.

That's why I live in a relatively urban area where the places I need to get to are reasonably close. No suburbs for me.

You're talking big picture and I agree completely.

But if hybrid technology can be sufficiently advanced - 80 to 90 miles to the gallon - then that is where the car market is going and whoever can provide the best product is going to capitalize.

[Neshanic]

12. "The Producers" You will make more money doing a flop.

Both will go into bankruptcy soon, then the enevitable shedding of all shackles of pension funds amd health care. The unions will be done. Meanwhile in China, both will ratchet up production of cars for sale there and here; it's cheaper to have the Chinese build them in shiny new factories and ship them here and make a tidy profit. As the plants are being dissasembled here, all allied companies will bust the doors down to get up and running in China to supply the new plants there.

There are more Chinese than us, and GM and Ford will consider the US a secondary market in time, because just the raw numbers of buyers and will market to us accordingly.

[trogdor]

19. Springtime For Hitler!

[Dover]

Did you see the recent story about the American car co. exec. in China

who was having great success marekting a small fuel-efficient minivan to the Chinese (I think he worked for GM), and they fired him?

It seems the 'success story' didn't help their efforts to go bankrupt.

[Dover]

24. self-deleted

[mahatmakanejeeves]

14. "Stock shares of General Motors Corp. and Ford Motor Co...."

What an odd headline. I thought surely it would have been corrected by now.

I've heard of **bonds** acquiring "junk," or non-investment grade, status, but I've never heard of stocks being rated non-investment grade.

This can't be right.

[KittyWampus]

17. How Can This Be? GM & Ford Make The BEST Cupholders

[Ian David]

20. YAY! Die, General Motors, Die! n/t

[Dover]

25. That's been their plan. To die and to be reborn anew...

less a few hundred thousand employees and pensions and American factories.

[Ian David]

27. Told GM I wanted to see their executives jumping from their corner offices

I hope they don't cash-in on their bankruptcy.

Anyone check their inside trade records? Have the executives been dumping their stock before it was down-rated?

[Dover]

28. Of course 'cashing in' is exactly why they are going into bankruptcy.

Bankruptcy is no longer connected with failure or shame. It is now used as pure strategy. It's the cheapest and fastest way to be free of their burdens and re-emerge lean and mean (at least in their minds).
They have no intention of jumping out the window when they can force their employees, unions and pensioners to jump instead.

Checking to see if they dumped stock or made other maneuvers is a very good idea. Wouldn't be surprised at all.

[Name removed]

32. Deleted message

Message removed by moderator. Click here to review the message board rules.

[idlisambar]

34. not sure why you are celebrating

:shrug:

[mahatmakanejeeves]

40. I Wrote Bill Koenig,...

asking what he meant by non-investment grade stock. The concept is associated with bonds, not stocks. He wrote back, saying that the reference to stocks was an editing change made at the Detroit Free Press. Here are four paragraphs, the DU limit, from BK's original article:

>>
GM, Ford Motor Debt Ratings Cut to Junk by Moody's (Update4)
2005-08-24 21:44 (New York)

(Adds investor comment in sixth paragraph.)

By Bill Koenig

Aug. 24 (Bloomberg) -- General Motors Corp. and Ford Motor
Co., the two biggest U.S. automakers, were lowered to junk by
Moody's Investors Service following two quarters of losses at
both companies' North American auto operations.

Moody's lowered GM's senior unsecured credit rating two
levels to Ba2 and the rating on its General Motors Acceptance
Corp. unit to Ba1. Dearborn, Michigan-based Ford was reduced one
level to Ba1, a step below investment grade. Ford Motor Credit
Co. fell to the lowest investment grade. The Ford cuts affect
about $150 billion in debt, Moody's said in a statement today.

GM and Ford have struggled to maintain U.S. market share
this year, resorting to offers of employee discounts to all
buyers in an effort to boost sales. Moody's gave Ford its second
high-risk, high-yield rating, which will push it out of Lehman
Brothers Holdings Inc.'s most widely followed investment-grade
bond index. That may spark selling of the bonds.
....

Standard & Poor's lowered Ford to non-investment grade BB+
on May 5. S&P also cut Detroit-based GM to junk status in May,
to BB, and the Moody's cut removed its last investment-grade
rating. Fitch Ratings has a BB+ on GM. GM has about $170 billion
of debt, Moody's said.
....
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