Fitch sees possible defaults at US automakers
Posted Jun 26th 2008 10:47AM by Douglas McIntyre
Filed under: Analyst reports, Analyst upgrades and downgrades, Forecasts, Bad news, Industry, General Motors (GM)
For the first time since the current crisis hit the car industry, the issue of debt default at one of the Detroit car companies has been raised by a ratings agency. According to The Wall Street Journal, "Fitch warned that Chrysler's issuer-default rating could be lowered two more notches from the current B-minus to CCC -- nearly default status -- if problems with rising loan delinquencies and losses on auto loans trickle down to retail volumes."
Fitch also downgraded GM (NYSE: GM). It has started to dawn on the experts in debt, cash flow, and balance sheets that if the current course of events in the US car industry continues, the former "Big Three" may have to raise more money or face a horrible cash crunch. There were concerns about Chapter 11 possibilities in Detroit three years ago and now those are returning.
But, that was then and this is now. Past problems in Detroit were primarily on the cost side. The car companies have cut billions of dollars in expenses and put together a new deal with the UAW. The concern now swings to revenue. Lehman Bros. recently said the the rate at which autos are being sold in June could indicate an annual sales figure of only 12.5 million vehicles in the domestic market. Last year the US produced 16.1 million unit sales.
"Default" is back in the dictionary in Detroit.
Douglas A. McIntyre is an editor at 247wallst.com.
Tags: Chrysler, F, Fitch, GM
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