Moody's Downgrades GM; Could Ford Be Next?

Last Updated Aug 14, 2008 8:40 PM EDT

gm_logo_300.bmpMoody's Investors Service on Aug. 13 downgraded its credit rating for General Motors, putting it in the same "Caa1" category as Chrysler LLC, which Moody's downgraded on Aug. 7.

Readers may recall from my blog at the time that any rating that starts with a "C" is bad news. Credit ratings aren't report cards. There is no "D" or "F." A "C" with no suffix is as low as it goes. The "aa1" part of "Caa1" means a company is at the high end of the lowest grade.

"The most difficult challenge facing GM and the other domestic producers will be accelerating the introduction of fuel efficient vehicles, and convincing consumers that these vehicles offer as good a value proposition Asian product," said Bruce Clark, senior vice president with Moody's, in a written statement.

He noted that GM has a plan to raise $15 billion in cash through cost-cutting and asset sales. That buys some time, "but it (introducing more fuel-efficient vehicles) will remain a very difficult transition to implement," Clark said.

Winner of the tallest-midget contest in Moody's ratings is Ford Motor Co., which has a B3 rating. That's one step above GM and Chrysler, and the rating that those companies had, before the latest downgrades.

On July 15, Moody's reiterated its Ford rating, but with a negative outlook. That could make Ford next in line for a downgrade.