Saturday, May 7, 2005

The New York Times > Automobiles > Credit Rankings of G.M. and Ford Lowered to Junk

The New York Times > Automobiles > Credit Rankings of G.M. and Ford Lowered to Junk: "General Motors and Ford Motor lost their investment grade ratings Thursday, pushing two of corporate America's biggest borrowers into the ranks of junk bonds and rattling the financial markets with the message that the collective fortunes of the remaining two domestically owned automakers have sunk to their lowest points yet."

The implications of this are more serious than the non-expert might suppose. The auto companies have structured their business in the U.S. around the financing of auto purchases. It is the consumer financing arms of these companies, which have made a profit, not the manufacturing businesses, which the naive might suppose are the core of these companies.

Junk bond status, if it results in higher interest rates for the commercial paper, which these companies use to finance auto loans, may very well doom these giant corporations. Of course, that's a big if, but this is a step down a very steep path. And, along that path lies the potential for seeing their pension funds fail.

The broader problem, of course, is the American corporation has become, increasingly, in the typical case, either hollow or corrupt, or both. Corporate management has been allowed to run wild. They control the Media. They elect the President and the Congress of their choosing. They inflate their own salaries into the stratosphere, while holding down wages and looting pension funds.

If the "Perfect Storm" comes, it will be structures of corporate America, which collapse in the wind.

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