Could Debt Bring Down Detroit's Big Three?

June 23, 2008
Stocks Down

Stocks Down

We don't have to go over the details, do we? Let's just say things aren't going well with the Big Three. OK, a few details, so we can put the latest news into perspective. After years of multi-billion-dollar losses, this was supposed to be a turnaround year for the Big Three. Ford, in particular, had promised to put itself back in the black and almost seemed ready to get there with this year's early quarterly profit. But now that automaker has ruled out any black ink through at least 2009, and CEO Alan Mulally won't even lay out a forecast beyond that point. GM racked up more big losses this year, and with it sharply curtailing production of once-profitable trucks, don't look for it to make money any time soon. As for Chrysler, well, as a private company, a wholly owned subsidiary of the big private fund, Cerberus Capital Management, we might never really know what its bottom line looks like. But an educated guess? Disastrous.

Now comes word from S&P, the benchmark ratings service that it just might cut debt ratings on all three of Detroit's automakers. The impact would be significantly worse than a bad review and could up to millions upon millions more in terms of borrowing costs. S&P says it's particularly concerned by the impact of all prices, which is eroding demand for the trucks Detroit has long depended on.

While no one is saying quite what this might mean, it's interesting to note that back in 1992, GM came a hair's breadth away from going broke and actually had an executive posted at the executive suite's fax machine, waiting for word from the ratings agencies about a threatened discounting of debt. Had S&P downgraded the company, I was told, the automaker would have been forced to declare bankruptcy, as it couldn't have shouldered the added costs.

A debt downgrade alone probably wouldn't trigger this sort of catastrophe - at least not by itself, this time. But with the continuing cascade of bad news, who knows how much more the Big Three will be able to tolerate?

Do you, our readers, anticipate a bankruptcy by one or more of Detroit's makers?

The Car Connection
See the winners »
The Car Connection
Commenting is closed for this article
Ratings and Reviews
Rate and review your car for The Car Connection
Review your car
The Car Connection Daily Headlines
I agree to receive emails from The Car Connection. I understand that I can unsubscribe at any time. Privacy Policy.
Thank you! Please check your email for confirmation.