- The Washington Times - Friday, August 1, 2008

NEW YORK | Standard & Poor’s Ratings Services cut its ratings Thursday for all three U.S. automakers further into junk status, citing worries about their mounting cash losses and the continued deterioration of the U.S. auto market.

S&P; lowered its ratings for General Motors Corp., Ford Motor Co. and Chrysler LLC. It also lowered its ratings on the Big Three’s financing arms — GMAC LLC, Ford Motor Credit Co. and DaimlerChrysler Financial Services Americas LLC.

In addition, the ratings service cut its corporate credit rating on FCE Bank PLC, Ford Credit’s European bank.

S&P; Credit Analyst Robert Schulz said the steep drop in new vehicle sales and the shift in consumer preferences toward smaller, more fuel-efficient vehicles is going to make it harder for the automakers to restructure themselves and force them to use their cash reserves.

Mr. Schulz pointed to Toyota Motor Corp., which was not included in the ratings changes but recently cut its global sales forecast, as an example of how tough the economic environment has become.

“It’s really a different world from the last several years,” Mr. Schulz said during a conference call.

S&P; said it expects U.S. vehicle sales, especially those of trucks and SUVs, to continue to weaken and result in higher cash losses for all three automakers in the second half of 2008.

The ratings service said it expects U.S. vehicle sales to drop to 14.4 million units this year, down from 16.1 million in 2007. Demand is expected to continue to fall next year, with industry-wide sales expected to total just 14.1 million units.

But if oil prices keep rising and the housing market continues to struggle, there is a chance that sales could fall to as low as 13.6 million units this year and 11.7 million next year, S&P; said.

S&P; said GM could spend as much as $16 billion on restructuring and other costs in 2008, while Ford could go through $12 billion to $13 billion. Cash use at privately held Chrysler also is expected to be substantial.

While all three automakers currently have adequate cash, Ford appears to be is in the best shape considering its relatively abundant reserves and smaller size compared with GM, S&P; Credit Analyst Gregg Lemos Stein said.

The outlooks of all the companies are negative.

S&P; said it does not expect to change the outlooks or raise the ratings for any of the companies within the next year in light of the current economic outlook, risks associated with their restructurings and potential pressure on their available cash.

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