Both automakers have bolstered liquidity and have adequate cash to fund restructuring plans this year and probably even into 2008, S&P said in a report.
"But going into 2009, both Ford and GM must be close to generating cash from automotive operations, or they will face harsh choices if cash balances dwindle," S&P said.
S&P's report came one year after it warned that GM and Ford both needed to gain traction on their turnaround plans. The agency said it is still unclear whether their plans will be successful in the long run, or whether after some initial success, they will continue to burn cash and require further restructurings.
"On several fronts, GM and Ford have been successful in at least laying the necessary groundwork for a turnaround, but this is no guarantee of success," S&P said.
S&P rates Ford and General Motors "B," five steps below investment grade. The outlook on both automakers is negative, indicating a downgrade is expected over the next two years.
"Our focus is on executing our plan and we feel we have a good one that still has a great outlook for success," said Ford spokesman Oscar Suris.
GM spokeswoman Melisa Tezanos said the company is happy with its progress.
"While there's still more work to do, we saw some important results in 2006," she said, citing record revenues of $207 billion, positive fourth-quarter net income and operating cash flow, a $6.8 billion reduction in North American structural costs and strong liquidity of $26.4 billion.
Both Ford and GM have made it clear that returning their North American operations to profitability and positive cash flow is an expensive, multi-year process, S&P said.
A fall in sales of highly profitable sport utility vehicles has exposed the extent of excess capacity and costs in both companies' North American operations, the agency said.
Although both automakers are reducing production capacity, it remains to be seen whether the lower levels will be right for their market share and product mix, the rating agency said.
The automakers have done well at bolstering liquidity, taking advantage of favorable capital market conditions, S&P said. GM's $26.4 billion in cash and equivalents at year-end 2006 was up from $20.4 billion in 2005, largely because of the sale of a 51 percent stake in its GMAC finance arm, S&P said.
Ford has also raised substantial cash from asset sales, including $5.6 billion from Hertz Corp. in 2005, leaving cash and short-term securities and assets at $33.9 billion at year-end 2006, S&P said.
Neither company faces significant debt maturities in their auto operations over the next few years, S&P said.
However, worse-than-expected sales or a broad economic downturn "would cause us to reconsider whether their liquidity is still adequate," the agency said.