US:Ford ratings under less pressure than GM's, S&P says
Ford ratings under less pressure than GM's, S&P says
NEW YORK -- Ford Motor Co. will likely remain a higher-rated company than General Motors as both automakers' ratings slide deeper into junk territory, Standard & Poor's said on Tuesday.
A day after threatening to downgrade credit ratings on both automakers, S&P analysts reiterated that they expect any cut to Ford's ratings to be limited to one notch but declined to rule out a two-notch cut to GM.
Despite that, GM should still have good liquidity, including access to some bank credit, S&P said.
"Ford and GM have substantial cash balances and other forms of liquidity, and we believe liquidity should remain adequate near term," S&P analyst Robert Schulz said on a conference call.
A two-notch downgrade would leave GM's ratings in the single-B range, a level where nearly one in three bonds default over 10 years, according to S&P data.
Hurt by a plunge in SUV sales after two hurricanes drove gasoline prices sharply higher, GM on Monday posted a 24.2 percent drop in vehicle sales in September, while Ford suffered a 19.5 percent drop.
"Although the two companies have many problems in common, the earnings and cash flow of Ford are holding up relatively better than General Motors this year," said S&P analyst Scott Sprinzen.
Still, Ford is not immune from threats to its profits as customers switch from large SUVs, Detroit's traditional profit center, into more fuel-efficient vehicles, S&P said.
A two-notch downgrade would leave GM's ratings at "B-plus," the fourth-highest junk rating, versus its current "BB" rating. On average, bonds with "B-plus" ratings have a 10-year cumulative default rate of 30.1 percent, versus 17.3 percent for "BB-rated" bonds, according to S&P data.
A one-notch downgrade would leave Ford at "BB," the second-highest junk rating.
The rating review on Ford reflects concerns about its reliance on SUVs for its earnings, despite efforts to strengthen other product offerings, S&P said. As with GM, the performance of Ford's finance arm, Ford Motor Credit, has been in line with expectations but not strong enough to offset problems with vehicle sales in North America, S&P said.
GM should continue to have access to some bank credit, even if it is downgraded, Sprinzen said in response to a question.
"Certainly, a lower rating and all the problems that could precipitate a low rating aren't going to be viewed favorably by the bank community, but as far as we know, the bank support is still fairly good."
Most of GM's funding requirements are at its finance arm, General Motors Acceptance Corp., which has no near-term issues with liquidity, he said.
Also, GMAC is largely financing itself with asset-backed securities and sales of whole loans, and those funding sources should not be directly affected by ratings downgrades, Sprinzen said. GM and Ford both have relied more on the asset-backed market after downgrades caused borrowing costs in the unsecured bond market to surge.
S&P also said it is open to considering any alternatives GM comes up with to achieve higher ratings for GMAC and Residential Capital Corp., the residential mortgage business that was reorganized as a separate holding company last May.
S&P also put Residential Capital's ratings on review for a downgrade on Monday, citing its links to GM and GMAC.
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....