GM and Ford = Junk

Alright, I drive a Pontiac and love it. But Moody's, the other major credit rating agency, has followed S&P's lead and downgraded the debt of our beloved automakers:

General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, were lowered to junk by Moody's Investors Service following two quarters of losses at both companies' North American auto operations.

Moody's lowered GM's senior unsecured credit rating two levels to Ba2 and the rating on its General Motors Acceptance Corp. unit to Ba1. Dearborn, Michigan-based Ford was reduced one level to Ba1, a step below investment grade. Ford Motor Credit Co. fell to the lowest investment grade. The Ford cuts affect about $150 billion in debt, Moody's said in a statement today.

GM and Ford have struggled to maintain U.S. market share this year, resorting to offers of employee discounts to all buyers in an effort to boost sales. Moody's gave Ford its second high-risk, high-yield rating, which will push it out of Lehman Brothers Holdings Inc.'s most widely followed investment-grade bond index. That may spark selling of the bonds.

I'm not a master of corporate finance, but my sense is that this is particularly troubling because it hinders the future fundraising of these companies that are already suffering present financial difficulties. This will only compound those difficulties, and likely mean that broader and deeper structural changes need to be made before any recovery becomes feasible. It ought to be noted, however, that the last paragraph of the story says that neither GM nor Ford has had a AAA rating (the highest) since 1981. It would be interesting to see if/how the ratings have fluctuated since then. Whatever the case, not good news for those companies today.