GM to be lowered to junk status

General Motors Corp. shares fell again Monday as another Wall Street analyst advised investors to start selling GM stock amid expectations the automaker would be lowered to junk-bond status and cut its dividend to shareholders. It was another day of bad news for GM — part of a two-week stretch of really bad news amid a 2005 of mostly bad news. GM had largely avoided the bad news, financial losses and job cuts that plagued Ford Motor Co. and the Chrysler Group the last five years, but now GM is facing its worst financial quarter in 13 years, and the threat of becoming a so-called junk investment looms.

How did it come to this for the world's largest automaker? It's the product, stupid. It's namely the new product that is not selling or the old product that is not selling as well as it did when GM was raking in multibillion-dollar profits from 2001-03 and gaining some market share. "If you go back to the post-9/11 era, GM had a certain swagger. Its trucks, like the Cadillac Escalade or Hummer H2, were doing well, and they were taking market share from Ford or Chrysler. Now they have introduced a bunch of new cars and they just aren't hitting at all," said Robert Hinchliffe, auto analyst for the financial firm UBS.

GM is bracing for that already. Wall Street analysts say falling into junk-bond status could make borrowing more expensive for the automaker and make its turnaround even more difficult. It might also have some psychological impact on the automaker.

A downgrade by Standard & Poor's could have a domino effect. If S&P cuts GM's rating, that could prompt other agencies to also lower their rating to junk-bond status. That in turn would force a number of mutual funds and pensions funds to sell off their stakes in GM. Detroit Free Press

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