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GM and Ford downgraded to junk

General Motors and Ford’s debt rating has been downgraded to ‘junk’ status by the US credit agency Standard and Poor’s (S&P).

S&P said its decision reflected tough global competition in the market and slower sales of both firms' leading vehicles.

The downgrades, affecting debt worth about $290bn (£152bn), are the largest cuts to junk in a single day.

A junk status rating suggests that a company is more likely to default on its debt.

Last month, GM reported a net loss of $1.1bn (£0.58bn) in the first three months of 2005, largely due to flagging sales and the rising cost of employee healthcare.

Rival Ford also reported a 40% drop in first-quarter net profits, to $1.21bn (£0.64bn), citing falling US sales and rising prices for raw materials.

S&P cut GM and General Motors Acceptance Corp's long-term credit ratings to 'BB', the second-highest junk rating.

Meanwhile, S&P cut Ford and Ford Motor Credit Co's long-term credit ratings to 'BB+', the highest junk rating.

GM and Ford, which are the world's number one and three carmakers respectively, said they were disappointed with the downgrades.

Both companies stressed they had ample cash reserves.

(Source: bbc.co.uk)

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