The ratings prospects at one of the world's leading automotive companies is forcing its finance arm, General Motors Acceptance Corporation (GMAC), to restructure its borrowing requirements in the event that that its parent, GM, suffers a downgrade. Strong cash flows and alternative sources of funding have been sought by GM's financial arm in the event of a downgrade ? the Detroit-based automotive manufacturer sits just one level above junk status by Standard & Poor's reckoning ? which would invariably see its bondholders start to sell GM stock as a result of their unwillingness to hold junk bonds. This would cut GMAC's ability to lend to its customers.
Speculation about a potential downgrade has arisen following poor performance in 2004. Third quarter results revealed that GM missed its earnings target by $100 million and lost money in its main north American business. Nor has its European business offered any form of reprieve with GM planning to cut 12,000 jobs in a region that has seen the company lose around $3 billion since 2000.