GM, Chrysler may face '09 cash crunch
Mike Ramsey / Bloomberg News
General Motors Corp. and Chrysler LLC may face a cash squeeze next year as U.S. sales decline on a slowing economy and rising gasoline prices that are pushing buyers toward more fuel-efficient vehicles, Fitch Ratings said.
Fitch lowered the issuer default ratings at GM and Auburn Hills-based Chrysler to B-, six steps below investment grade, from B. Both companies have a negative outlook, meaning they could be downgraded further, Fitch said in a statement Wednesday. Ford Motor Co.'s rating is being reviewed.
The changes reflect concern that efforts to cut costs and revamp product lines haven't been enough as gasoline at $4 a gallon erodes demand at U.S. automakers, which generate more than half their sales from pickups and sport-utility vehicles. Through May, GM's sales are off 16 percent from a year ago, Chrysler's are down 19 percent and Ford's have lost 11 percent.
"Negative cash flows could result in Chrysler's liquidity position reaching minimal required levels in late 2009," Mark Oline, an analyst at Fitch, said in Wednesday's report. Fitch expects "new financing activity will be required over the next 18 months to keep GM's cash position over the minimum comfort level," he said in a separate report.
While Dearborn-based Ford may have sufficient liquidity to weather current conditions through 2009, "unrelenting industry and economic pressures make it increasingly likely that Ford will be unable to maintain its existing ratings," Fitch said.
Standard & Poor's said last week it may downgrade debt ratings on Detroit-based GM, Ford and Chrysler for similar reasons.
GM will probably drain more than $10 billion in cash this year, and may have to borrow more money to stay above the minimum of $12 billion to $14 billion needed to pay operating costs, Oline said in the report.