Ford, GM Shares Slide on Credit Concerns

Standard & Poor's put the automakers on CreditWatch negative, citing concerns about rising gas prices.
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Updated from 2:27 p.m. EDT

Shares of

Ford

(F) - Get Report

and

General Motors

(GM) - Get Report

saw losses accelerate Friday after Standard & Poor's placed the automakers' corporate credit ratings on CreditWatch negative.

S&P Ratings analysts said they would need to evaluate the financial damage being inflicted by deteriorating U.S. industry conditions, largely as a result of high gasoline prices. S&P also placed the automakers' finance units, Ford Motor Credit and GM's 49%-owned finance affiliate GMAC, as well as

Chrysler

and DaimlerChrysler Financial Services Americas on CreditWatch negative.

"We have renewed concerns about all three automakers' future cash outflows in light of the prospects for U.S. sales for the rest of 2008 and into 2009," said Standard & Poor's credit analyst Robert Schulz. The firm said it also believes deteriorating industry fundamentals could reduce liquidity to undesirable levels by the second half of 2009.

Moody's also changed its ratings outlook for Ford and Ford Credit to negative from stable, citing "parent level concerns and deteriorating asset quality."

Earlier Friday, Ford said it is making further reductions to its North American truck production plan as the company responds to the continued deterioration in the U.S. business environment and the accelerated shift away from large trucks and SUVs. Ford said 2008 pre-tax automotive results will be worse than 2007 and, unless the economy rebounds, it will be difficult for Ford to break even companywide on a pre-tax basis in 2009, excluding special items.

Cramer: GM and Ford Are Lemons

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Additionally, Ford announced the delay of this fall's launch of the F-150 pickup by two months in order to clear existing inventory. Shares of Ford were falling 56 cents, or 8.9%, to $5.76. GM, meanwhile, was falling 94 cents, or 6.4%, to $13.85.

"As gasoline prices average more than $4 a gallon and consumers worry about the weak U.S. economy, we see June industry-wide auto sales slowing further and demand for large trucks and SUVs at one of the lowest levels in decades," said Ford President and CEO Alan Mulally. "Ford has taken decisive action to respond to this accelerating shift in customer demand away from large trucks and SUVs to smaller cars and crossovers, and we will continue to act swiftly moving forward."

Ford now expects U.S. industry volume in 2008, including medium and heavy vehicles, to be between 14.7 million and 15.2 million units, compared with the previous assumption of 15 million to 15.4 million units. In the third quarter, Ford now plans to produce 475,000 vehicles, a reduction of 50,000 units from previously announced plans and a decline of 25% from the year-ago quarter. In the fourth quarter, Ford plans to produce 550,000 to 590,000 units, a reduction of 40,000 units from previously announced plans and a decline of 8% to 14% from a year earlier.

Additionally, the company said Ford Motor Credit will now incur a pre-tax loss this year, excluding any potential payment related to Ford's profit maintenance agreement, primarily due to further weakness in large truck and SUV auction values. Ford Credit is no longer planning a distribution payment to Ford this year.

Also earlier Friday,

a Lehman Brothers analyst wrote

that a weakening used car market could hit Ford and GM with big writedowns, and that Ford's financing arm may write down $1.1 billion and GM's could write down $1.5 billion as the automakers find the residual values of leased vehicles has dropped significantly, Lehman analyst Brian Johnson wrote.