Moody’s too cuts GM ratings to junk

The outlook for both companies is negative, Moody’s said, which means further downgrades may result if GM fails to successfully implement its North American recovery plan, including cutting health-care costs and reducing the number of workers. “We are working very hard in discussions with the UAW regarding healthcare,” said the company’s spokesman Jerry Dubrowski, in response to the downgrade. “We are well aware of our challenges with healthcare and our cost footprint.”

Moody’s forecast that GM’s total automotive operating cash flow in 2005 will be about negative $3 billion, but that the company’s $20 billion cash and other reserves will provide it with adequate liquidity over the next 12 months.

The downgrades affect about $170 billion of outstanding debt, Moody’s said.

Moody’s was the last of the three major ratings agencies to cut the auto giant to junk status. Moody’s cut GM’s senior unsecured debt rating to “Ba2” from “Baa3,” and GMAC’s senior unsecured rating to “Ba1” from “Baa2.” The outlook is negative on the new ratings.

Dubrowski said GM was disappointed with the downgrade, but pleased that Moody’s continues to view GM and GMAC as separate credits, unlike Standard and Poor’s and Fitch Ratings.

Moody’s also cut GM’s short-term rating to “Not Prime” from “Prime-3.”

Meanwhile, GM said it was extending through September 30 the discount programme under which it is selling anybody a new car or truck at the same low price a GM employee would pay. The successful programme, which GM introduced on June 1, had been set to expire on Sept. 6. But spokeswoman Brenda Rios said it would continue through the end of next month.