Despite a credit downgrade, Ford Motor Credit Co. and General Motors Acceptance Corp. say they do not anticipate raising interest rates on vehicle loans or inventory credit lines for dealers.
Last week Standard & Poor's lowered General Motors' and Ford Motor Co.'s debt ratings - as well as those of their captive finance operations - to junk status.
That rating reduces the automakers' ability to raise money by issuing bonds and will increase their long-term borrowing costs.
But the investment community anticipated the downgrades, and both GMAC and Ford Credit have explored new ways to borrow money.
"Both companies have taken measures to decrease their reliance on commercial paper and increase their reliance on asset-backed securities," says Eric Selle, a director at Wachovia Securities in Charlotte, N.C.
Ford Credit and GMAC can borrow money by selling asset-backed securities - which include vehicle loans and leases - to investors. That process is called securitization.
Ford Credit has raised $12 billion this year. Of that total, $8 billion is in asset-backed securities, the company says. "We forecasted our funding needs for this year to be $16 billion to $25 billion," says Chris Solie, a spokeswoman for Ford Credit. "We are in a good position."
Likewise, GMAC is reducing its reliance on traditional corporate bonds. As of 2001, two-thirds of GM's total debt was in corporate bonds. That share was reduced to one-third by Jan. 1, says GM spokesman Jerry Dubrowski.
In a letter to employees, GMAC Chairman Eric Feldstein says the company's strategies have made its credit rating "a far less significant profit driver" than in the past.
Also, both Ford and GM have large cash reserves and available lines of bank credit. Both sources of funds are unaffected by the ratings downgrade, says a Merrill Lynch report issued last week.
But the downgrades will hurt the two automakers' profits. According to automotive analyst Steve Girsky of Morgan Stanley, Toyota Motor Corp. recently issued a 10-year bond in the United States at an interest rate of 4.5 percent.
An equivalent GM bond, Girsky says, is trading at 8 percent.
Jason Stein and Gail Kachadourian contributed to this report
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