Agencies cut GM, Chrysler outlook due to recession, bailout; Ford falls on fears of impact.
Bryce G. Hoffman / The Detroit News
General Motors Corp. and Ford Motor Co. shares declined for a second day Tuesday as Wall Street continued to absorb the details of the federal government's bailout of the domestic automobile industry.
The White House's $17.4 billion bailout of GM and privately held Chrysler LLC prompted key ratings agencies to slash their outlook for America's carmakers Monday, while fears of a deepening recession have made an already bleak situation that much worse.
As a result, GM's stock lost 52 cents a share Tuesday, dropping nearly 14.8 percent to close at an even $3, after falling 22 percent on Monday.
Ford, which is not a party to the bailout, was still pummeled by investors concerned about how the forced restructuring of its crosstown rivals could impact the Dearborn automaker. Its stock was down 40 cents a share, falling more than 15.4 percent to close at $2.19 on Monday, following a 14 percent decline on Monday.
As underscored by the financial troubles of Detroit's automakers and Toyota Motor Corp.'s warning Monday that it would post its first pre-tax operating loss since 1950 this year, the world's major automakers are facing another year of sharply weak sales and output. Volatile energy prices, weakening economic growth worldwide and tight credit have curtailed new car and truck sales.
GM and Chrysler are splitting $17.4 billion in emergency federal loans, but that money is just enough to see them through until March, when both companies are expected to ask Uncle Sam for billions more to fund a broader restructuring effort. Though Ford is receiving nothing from the White House, it still plans to ask the federal government for a $9 billion line of credit in March as a hedge against a continuing deterioration of the economy.
"In return for its loans to GM and Chrysler, Washington is going to demand that all stake holders step up and make sacrifices. This will mean wage and benefit concessions from the UAW, and haircuts to debt for creditors," said Bruce Clark, senior vice president at Moody's Investors Service. "Even if Ford ends up not needing government loans because of its stronger liquidity position, the company must have UAW parity with GM and Chrysler. But, the UAW is unlikely to make concessions to Ford unless Ford's creditors also bear some pain in the form of a debt restructuring."
Clark slashed Ford's credit rating from Caa3 to Caa1 on Monday, putting the automaker's bonds even deeper into junk bond territory.
Those same concerns -- coupled with the potential ramifications of a smaller bailout by the Canadian and Ontario governments -- also prompted Standard & Poor's to slash GM and Chrysler's credit ratings even more dramatically.
"We expect these U.S. and Canadian government loans to be backed by a security package that includes currently unencumbered assets, which would lead to a significant decrease in value for unsecured debt-holders in the event of a bankruptcy or payment default," said Standard & Poor's credit analyst Robert Schulz.
In the United States, GM's market capitalization, the value of its outstanding shares, is now just $1.83 billion. Ford, which has issued far more shares than GM, is now worth $5.23 billion -- nearly three times as much as its larger competitor.
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