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Ford and GM ‘junk’ alarm

Ford Motor Company and General Motors are in a precarious bond market position, both rating only one notch above so-called junk status and suffering further share price falls.

Dropping below investor status forces some investors to pull out.

Both groups have issued profit warnings in recent weeks and will find borrowing money more difficult and more expensive as markets react to dire forecasts.

Last week Earl Hesterberg, Ford’s North American sales and marketing boss since January 1, quit to head Group 1 Automotive, a Houston-based retailer with 96 dealerships nationwide. He is replaced by Steve Lyons, a group vice-president and president of the Ford brand division.

A Ford spokesperson said the departure of Hesterberg, previously head of its European sales and marketing operation, was not connected to either a warning that group earnings would fall well short of forecasts, nor its loss of US market share and battle to keep trading profitably.

The upheaval comes just a week after GM chief executive Rick Wagoner took control of the group’s North American division.

Money markets are jittery, in part because Ford and GM are struggling in a strong economy. Importers, some with plants in the US, are increasingly bullish.

Credit ratings are significant to the ability of companies to invest in their futures.

A credit strategist says: “The timing of Ford’s lower rating demonstrates how quickly conditions have deteriorated.

If the outlook weakens in the next 12 months, the auto companies might well find they do not have their future in their hands.”

Last month, Ford dismissed speculation that it could collapse. At a press briefing in London, Ford Motor Credit vice-chairman and chief financial officer Dave Cosper said the group is relying on new products and dealer performance to improve its position.

“When we make a car loan, it brings the customers back,” he says, stressing the importance of the relationship between manufacturing and advancing finance. He adds: “We are an investment grade company and intend to stay that way.”

Peter Jepson, executive director of finance of Ford Motor Credit’s European arm, says: “Five years ago, the UK and Germany accounted for 80% of our European finance business. Now they represent less than two thirds.”

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