Post by Jake on May 5, 2005 14:01:25 GMT -5
5/5/2005 2:50:00 PM ET
Stocks tumble as S&P downgrades GM, Ford
Higher energy prices claimed two big victims today. Standard & Poor's Corp. downgraded General Motors (GM, news, msgs) and Ford Motor Co. (F, news, msgs) bonds to junk status.
The announcement of the downgrades turned a flat market into a loser. The Dow Jones industrials were down nearly 80 points points at 2:50 p.m. with just seven of 30 stocks ahead on the day. The Nasdaq Composite and Standard & Poor's 500 Index were both down about 6 points. Oil prices, meanwhile, moved up. Light sweet crude in New York was up 77 cents a barrel at $50.90.
Ford and GM shares, meanwhile, were both down about 5%, and autoparts suppliers were getting hammered.
Treasury securities, meanwhile, rallied as investors sought safety. The 10-year Treasury note was yielding 4.17%, down from 4.19% yesterday.
S&P was blunt about the problem for both companies. GM and Ford have relied on profits from their sports utility vehicles to carry their domestic businesses. Sales of SUVs have plummeted so far this year because of higher gasoline prices. S&P doesn't see the situation turning around any time soon. Indeed, overall U.S. vehicles sales are likely to be stagnant, S&P said, for some time to come. Partly, this is due to the heavy discounting all U.S. companies have engaged in during the last few years. That had the effect of stealing future sales.
At the same time, the companies' overseas operations are in no condition to offset the problems in the United States.
But the rating agency said neither company is in danger of running out of cash any time soon. Both have adequate cash reserves and access to funds from bank lines of credit.
S&P said investor Kirk Kerkorian's decision to boost his stake in GM to 8.8% had no effect on its GM decision. (GM shares jumped 18% yesterday on the news.)
GM, with about $291 billion in notes, bonds, loans and asset-backed securities outstanding as of March 31, is the biggest company ever cut to junk, Bloomberg News said. Ford's debt totaled $161.3 billion on March 31. GM said it was disappointed in the S&P decision but said it had adequate finances to fund its business, CNBC reported.
GM and Ford have struggled for years but especially since 2000 against intense competition from Japanese automakers Toyota (TM, news, msgs), Honda (HMC, news, msgs) and Nissan (NSANY, news, msgs) and Korean automaker Hyundai (HYMLF, news, msgs). Toyota, Nissan and Honda shares were lower. Hyundai shares were unchanged.
While the quality of American-built cars and trucks has improved, it still lags behind the Japanese and, more recently, Koreans. GM has suffered from an aging product line and has seen its market share of SUVs decline from 33% in 1997 to 25.4% in April. Ford's share has dropped from 26.4% to 18.4%. Toyota's share has nearly doubled in the same time period to 14%. Honda's share has grown by two thirds to 9%.
Plus, the U.S. automakers are caught in a cost squeeze. Both face higher commodity costs, and health and pension expenses are significant parts of both companies' costs. The health costs alone work out to around $1,500 for every GM vehicle sold.
Stocks tumble as S&P downgrades GM, Ford
Higher energy prices claimed two big victims today. Standard & Poor's Corp. downgraded General Motors (GM, news, msgs) and Ford Motor Co. (F, news, msgs) bonds to junk status.
The announcement of the downgrades turned a flat market into a loser. The Dow Jones industrials were down nearly 80 points points at 2:50 p.m. with just seven of 30 stocks ahead on the day. The Nasdaq Composite and Standard & Poor's 500 Index were both down about 6 points. Oil prices, meanwhile, moved up. Light sweet crude in New York was up 77 cents a barrel at $50.90.
Ford and GM shares, meanwhile, were both down about 5%, and autoparts suppliers were getting hammered.
Treasury securities, meanwhile, rallied as investors sought safety. The 10-year Treasury note was yielding 4.17%, down from 4.19% yesterday.
S&P was blunt about the problem for both companies. GM and Ford have relied on profits from their sports utility vehicles to carry their domestic businesses. Sales of SUVs have plummeted so far this year because of higher gasoline prices. S&P doesn't see the situation turning around any time soon. Indeed, overall U.S. vehicles sales are likely to be stagnant, S&P said, for some time to come. Partly, this is due to the heavy discounting all U.S. companies have engaged in during the last few years. That had the effect of stealing future sales.
At the same time, the companies' overseas operations are in no condition to offset the problems in the United States.
But the rating agency said neither company is in danger of running out of cash any time soon. Both have adequate cash reserves and access to funds from bank lines of credit.
S&P said investor Kirk Kerkorian's decision to boost his stake in GM to 8.8% had no effect on its GM decision. (GM shares jumped 18% yesterday on the news.)
GM, with about $291 billion in notes, bonds, loans and asset-backed securities outstanding as of March 31, is the biggest company ever cut to junk, Bloomberg News said. Ford's debt totaled $161.3 billion on March 31. GM said it was disappointed in the S&P decision but said it had adequate finances to fund its business, CNBC reported.
GM and Ford have struggled for years but especially since 2000 against intense competition from Japanese automakers Toyota (TM, news, msgs), Honda (HMC, news, msgs) and Nissan (NSANY, news, msgs) and Korean automaker Hyundai (HYMLF, news, msgs). Toyota, Nissan and Honda shares were lower. Hyundai shares were unchanged.
While the quality of American-built cars and trucks has improved, it still lags behind the Japanese and, more recently, Koreans. GM has suffered from an aging product line and has seen its market share of SUVs decline from 33% in 1997 to 25.4% in April. Ford's share has dropped from 26.4% to 18.4%. Toyota's share has nearly doubled in the same time period to 14%. Honda's share has grown by two thirds to 9%.
Plus, the U.S. automakers are caught in a cost squeeze. Both face higher commodity costs, and health and pension expenses are significant parts of both companies' costs. The health costs alone work out to around $1,500 for every GM vehicle sold.