In a one-two punch for financial markets, Standard & Poor's have cut General Motors and Ford debt ratings to junk status, citing brutal global competition and flagging sales of the automakers' most profitable vehicles.
The downgrades, which total about $290 billion and are the largest cuts to junk in a single day, jolted financial markets. Stocks and the dollar weakened. Safe-haven Treasury debt prices rose. The broad junk bond market dropped.
The companies are facing difficult times and cuts to junk were expected later this year, but investors were surprised that S&P took action so soon. GM and Ford are struggling with high health-care, pension and materials costs, which, combined with brutal competition from overseas companies have winnowed their market share.