DETROIT -- General Motors Co. and Ford Motor Co. have declared war on debt as they seek investment-grade credit ratings and control of their financial destinies.
"You will see every dollar of spare cash that we generate put toward that use over the next few years," GM CFO Chris Liddell told analysts last week.
Ford said last week that it would pay about $3.8 billion in cash to the UAW health care fund, far more than the $859 million payment that was due.
Ford said it had reduced its total debt by $7 billion last quarter, saving $470 million in annual interest payments. That leaves Ford with about $27 billion in debt, much of it borrowed in late 2006 for its turnaround.
GM's debt is $15.4 billion, and a source says it seeks a $5 billion revolving credit line.
Both automakers seek to pay down debt to save on interest and improve credit ratings, which will cut borrowing costs. Ford has a B1 rating from Moody's Investors Service, four levels below investment grade. Post-bankruptcy GM has not been rated, but before it emerged from bankruptcy the automaker had the lowest possible rating from Standard & Poor's.
Himanshu Patel, an analyst for J.P. Morgan, expects Ford to achieve a rating "at least near investment grade" by the end of 2011.
Liddell said he aims for GM to be debt-free except for "a little bit of debt for tactical reasons." He also said GM should fully fund its pension plan, which has $26.8 billion in unfunded global pension obligations.
GM's U.S. hourly pension is about 80 percent funded and its U.S. salaried pension is about 89 percent funded. Ford's global pensions were 82 percent funded on Dec. 31, with $11.96 billion in unfunded obligations.
Sources say GM may supplement its upcoming initial public offering with added shares to improve its pension funding and balance sheet.
Bloomberg and Reuters contributed to this report