NEW YORK (Reuters) -- Moody's Investors Service on Tuesday cut its rating on General Motors deeper into junk territory, citing sliding market share and uncertainty about a turnaround at the world's largest automaker.
The downgrade takes GM's rating to the mid-range of the junk bond market, further hampering its ability to sell unsecured debt, strategists said.
Moody's cited a growing list of troubles at GM, which is trying to restructure its North American operations as high gasoline prices erode demand for its once-profitable sport utility vehicles.
GM has lost money for four straight quarters, including losses of more than $4.5 billion in North America this year.
It has been counting on a line of new trucks and SUVs to improve market share. But with consumers shifting to more fuel-efficient vehicles, the success of the new line is uncertain, Moody's said.
High wage and benefit costs are putting GM at a competitive disadvantage, while recent cost concessions granted by the United Auto Workers union are not likely to translate into cash benefits at GM until 2008, Moody's said.
The possibility of a strike at GM's major supplier, Delphi Corp., and a Securities and Exchange Commission investigation of GM's pension accounting are adding to uncertainties surrounding the automaker, Moody's said.
"GM is working aggressively to restore North American operations to profitability as quickly as possible," said GM spokeswoman Gina Proia, responding to Moody's action.
Steps to restore profitability include the agreement with the UAW on health care costs, a structural cost reduction target of $5 billion by the end of 2006 and commitment to achieving 100 percent capacity utilization by 2008, she said.
Shortly after Moody's action, GM reported a 25.9-percent drop in U.S. vehicle sales in October, according to the Automotive News Data Center, as gasoline prices hurt demand for big SUVs.
"Moody's has been drawing lines in the sand for both Ford and GM, and they've just been missing them on a bunch of different metrics," said Mirko Mikelic, portfolio manager and analyst for Fifth Third Asset Management. "Both manufacturers are definitely feeling the effects of market share loss."
Moody's cut GM's long-term senior unsecured rating by two notches to "B1," the fourth-highest junk rating, from "Ba2. Moody's said about $30 billion of debt was affected by the downgrade.
The outlook on GM's rating is negative, reflecting "a number of near-term challenges that could further pressure the rating," Moody's said.
Ratings on GM's finance arm, General Motors Acceptance Corp., were not affected but remain under review, with the direction of the rating uncertain, Moody's said. Most of GM's $285 billion of consolidated debt is issued by GMAC.
GMAC's rating could be raised if GM succeeds in its plan to sell a majority stake in GMAC, Moody's said. If a successful sale begins to appear less likely, GMAC's rating could be lowered, the rating agency said. Moody's currently rates GMAC "Ba1," the highest junk rating.
GM's benchmark bonds with an 8 percent coupon due in 2033 fell to 73.3 cents on the dollar from 74.4 cents on Monday, according to MarketAxess.
In the credit derivatives market, the cost of protecting GM's debt against default for five years rose by about 25 basis points to about 910 basis points, or $910,000 for every $10 million protected.
Moody's rating action comes about two weeks after GM posted a $1.6 billion third-quarter loss, including special items, hurt by slumping sales of its SUVs and high costs for materials and health care.