Citing headwinds in almost every direction, Fitch Ratings on Monday downgraded General Motors Corp.'s credit rating deeper into junk status.
The credit ratings agency said it reduced GM's issuer default rating one notch to "CCC" from "B-." Both ratings are noninvestment, or junk, grade.
Fitch analyst Mark Oline said GM's (GM) liquidity could drop to "minimum required levels" within the next year because of tightening credit in the U.S., weakening overseas results, continued sales declines in North America and the need for a large amount of capital spending to transform its lineup of from trucks and sport utility vehicles to smaller, more fuel-efficient models.
"If industry sales stay flat in 2009 with a deeply depressed 2008, we do think that the revenue pressures that GM and the industry will face will likely be in excess of their ability to reduce costs," Oline said in an interview. "So we do project that liquidity will continue to decrease, and the company's access to capital is severely limited by the conditions of the industry and the capital markets."
GM's external capital sources remain limited, Oline said. On Friday, the Detroit automaker said it was drawing down the last $3.5 billion of a $4.5 billion secured revolving credit facility to fund its restructuring costs during "uncertain times in the capital markets."
GM, which has lost $57.5 billion in the past year and a half, announced a liquidity plan in July that calls for $10 billion in internal cuts and raising another $5 billion through asset sales and borrowing over the next 15 months.
The company may have to cut more costs if the credit markets remain tight, Chief Operating Officer Fritz Henderson has said. While he expected GM to meet its liquidity targets, Henderson said last week that he could not predict what will happen in the credit markets, which affect consumer and corporate borrowing.
Last week, on its 100th birthday, GM unveiled the production version of the Chevrolet Volt, a rechargeable electric car that can go 40 miles on a single charge. Its range will be extended by a small internal combustion engine which will recharge the batteries while the car is being driven. The Volt, which GM has billed as its car of the future, is due to be on the market in November of 2010.
GM shares fell $1.50, or 11.5%, to $11.58 Monday.
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