Moody’s cuts GM, Ford debt to junk

[Marc]

Moody’s cuts GM, Ford debt to junk

By Richard Beales in new York
August 25 2005

Moody’s Investors Service cut its ratings on the unsecured debt of Ford and General Motors to junk status on Wednesday, following earlier downgrades by other rating agencies and removing any remaining doubt about the two carmakers’ fate.

In both cases, Moody’s highlighted concerns about deteriorating operating performance and the carmakers’ uncompetitive cost structures. The move left Ford’s finance unit clinging to a Baa3 investment grade rating, but the carmaker’s parent company was downgraded to Ba1, Moody’s highest non-investment grade mark.

Standard Poor’s downgraded Ford to junk in May, while Fitch Ratings still rates Ford and its finance arm investment grade.

GM and its finance unit GMAC were both cut to junk by S&P and Fitch in May. But the two-notch downgrade by Moody’s sent GMAC – which Moody’s rates a notch higher than its parent – into the junk bond arena, with a Ba1 rating. GM’s new rating is a notch lower, at Ba2.

“A successful restructuring must address the company’s high fixed-cost burden associated with hourly employee healthcare costs and excess capacity,” the agency said of GM.

It also said GM needed to curtail its use of sales incentives and address financial problems among its parts suppliers, particularly Delphi.

The two companies are among the world’s largest corporate borrowers, and together have $320bn of debt, according to Moody’s.

[Jim Wynne]

“A successful restructuring must address the company’s high fixed-cost burden associated with hourly employee healthcare costs and excess capacity,” the agency said of GM.

It also said GM needed to curtail its use of sales incentives and address financial problems among its parts suppliers, particularly Delphi.

Interesting that there's no mention of any need to improve products or reduce costs related to poor quality, or poor management of the supply chain, or the multiple other evidences of management incompetence.

[SteelMaiden]

Originally Posted by JSW05

Interesting that there's no mention of any need to improve products or reduce costs related to poor quality, or poor management of the supply chain, or the multiple other evidences of management incompetence.

maybe the management of the supply chain is included in addressing the financial problems of parts suppliers? it seems to me that automotive has spent many years dictating to suppliers how much they will make, in a round about way? everything is always, you need to cut your prices by X%. if you are strangling your suppliers, how can they produce high quality products? i fully agree that you need to buy as low as you can, but i've never been convinced that bullying is the correct way to go about it.

That being said, maybe i'm just lucky, but i've not had problems with my GM purchases. I hardly consider replacement of belts once and air filter once in 8 years (oh, my 100,000 mile tune up with the new parts there) as excessive. Is quality really so bad in GM (or Ford)? I don't know, going on my experience, no. But, I am only a sample of one and we all know that is very insignificant in the number of vehicles produced.

[jmp4429]

Originally Posted by SteelMaiden

That being said, maybe i'm just lucky, but i've not had problems with my GM purchases. I hardly consider replacement of belts once and air filter once in 8 years (oh, my 100,000 mile tune up with the new parts there) as excessive. Is quality really so bad in GM (or Ford)? I don't know, going on my experience, no. But, I am only a sampe of one and we all know that is very insignificant in the number of vehicles produced.

SteelMaiden,

I'm guessing you drive a GM Truck or a Saturn.

GM's truck quality seems to be good, but their passenger cars (with the exception of Saturns) tend to break a lot in my experience.

[Jim Wynne]

Originally Posted by jmp4429

SteelMaiden,

I'm guessing you drive a GM Truck or a Saturn.

GM's truck quality seems to be good, but their passenger cars (with the exception of Saturns) tend to break a lot in my experience.

Individual experience isn't necessarily indicative of reality on a large scale. In fact, actual quality doesn't make much difference if the widespread perception is that quality is poor. Detroit is still trying to recover from all of the undeniable cr*p (can you say "Vega" or "Pinto"?) produced in the 70's and 80's.

[SteelMaiden]

Hey! Are you making fun of the Pintos???? Cute little cars, too bad they blew up when hit from behind.

But J- do you really think that the car companies are still trying to overcome something that happened 30 years ago? Gosh it seems like they've still got the same problems, look at the problem with Crown Vics. Most law enforcement around here are replacing theirs with Impalas. It doesn't appear that they've learned much... I know there was a big to-do about Chevy/GMC pickups having problems with gas tank explosions last year, so if it isn't one brand it's another, and if it isn't one model, it's another.

[jmp4429]

Originally Posted by JSW05

Individual experience isn't necessarily indicative of reality on a large scale. In fact, actual quality doesn't make much difference if the widespread perception is that quality is poor. Detroit is still trying to recover from all of the undeniable cr*p (can you say "Vega" or "Pinto"?) produced in the 70's and 80's.

Not so much individual experience as what came in and out of the garage where I worked/hung out. Point taken, though.

Also, I stand by what I say about Saturns. You just can’t kill the darn things.

It’s odd though, I think people in general are selective about what generalizations they make based on one experience with a vehicle. For example, I’ll *never* own a Ford again, after one bad experience. However, I would have no problem buying a Honda even after my Dad’s little Honda (that he bought because they were ‘so reliable’) stranded us in the middle of nowhere several times in two years.

[ralphsulser]

Originally Posted by SteelMaiden

Hey! My Pinto was the only Ford I ever drove that I actually liked...luckily never got rearended, but it was ok for a little car

I bought a Pinto right off the showroom floor in 1974 for $2,500. Drove it for 4years, put 88,000 miles on it. Then got a $1,000 trade in on my next car.
I never had any mechanical problem with it. I could adjust the carb. and change the plugs and wires. I took out the carbon plug wires and put in copper wires, helped performance. Only had a problem with the exhaust pipe, hung too low and caught all the snow and ice and salt and rusted out.