Standard & Poor's Downgrades General Motors and Ford to Junk Status

Strategic Insights -

The investment world has experienced a significant shift with Standard & Poor's downgrading General Motors and the Ford Motor Company to junk status, citing a loss of confidence in management's ability to meet the competitive challenges of the marketplace. This decision will make it more expensive for the two largest domestic automakers to borrow, exacerbating their struggles to post profits in their main business of selling cars and trucks. As NPR's Jack Speer reports, the downgrades will have far-reaching implications for the industry.

Key Takeaways:

  • Standard & Poor's downgraded General Motors and the Ford Motor Company to junk status due to a loss of confidence in management's ability to meet competitive challenges.
  • The downgrades will make it more expensive for the two largest domestic automakers to borrow, increasing their financial burden.
  • The decision was widely anticipated, but still sent shock waves through the financial markets.
  • Both companies have expressed their unhappiness with the decision, citing challenges in North America that are not under their control.
  • The health-care bill for current and former workers at General Motors is expected to top $6 billion this year.
  • The largest labor union for General Motors is not in any hurry to renegotiate the current contract, which does not expire until 2007.
  • A crisis like the one General Motors is experiencing may help shake things up and motivate stakeholders to take action.
  • The downgrades had a negative impact on the Dow Jones industrials, with the index finishing down 44 points.
  • General Motors shares fell 6 percent, while Ford shares fell 4 1/2 percent.

Statistics:

  • The health-care bill for current and former workers at General Motors is expected to top $6 billion this year.
  • The Dow Jones industrials finished down 44 points in response to the ratings downgrade.
  • General Motors shares fell 6 percent, while Ford shares fell 4 1/2 percent.

Sources:

  • NPR News
  • Standard & Poor's
  • General Motors
  • Ford Motor Company
  • Center for Automotive Research