DETROIT – Shares of General Motors Co. sank to a 10-month low Friday after Standard & Poor’s raised doubts that the company’s credit rating would be restored to investment grade status this year.
GM shares dropped to a low of $31.82, down 4 per cent, in afternoon trading. It’s the first time the shares have dropped below GM’s 2010 initial public offering price of $33 since June of last year.
The shares have fallen more than 8 per cent since Feb. 13, when GM began a series of recalls, including 2.6 million small cars for a deadly ignition switch problem that is linked to 13 deaths. About half of that drop came on Friday.
The bad news has been piling up for the nation’s No. 1 automaker. On Thursday, it announced the recalled small cars, mostly Chevrolet Cobalts and Saturn Ions, need to have another part repaired. In addition to the small cars, the company has recalled 3.7 million more vehicles for various problems. GM now expects to take a related charge of $1.3 billion when it reports first-quarter earnings on April 24. That’s up from an initial estimate of $300 million.
The company said that despite the recall charge, it expects to report “solid core operating performance” in the first quarter. If it reports a quarterly net loss, it would be GM’s first since 2009.
In response, S&P said an upgrade of GM’s credit to an investment grade rating is less likely this year, and more likely in 2015. GM’s debt has below investment grade, or at “junk” status, since 2005.
The company has acknowledged that it knew about the ignition switch problem for at least a decade. Yet it didn’t recall the cars until this year. The admission has brought investigations from two congressional committees, the Justice Department and the National Highway Traffic Safety Administration, the government’s road safety agency.
On Thursday, GM announced that it had placed two engineers on paid suspension for their roles in the mishandling of the ignition switch issue.
S&P did keep its positive outlook on GM, but said it’s assuming a 0.5 per cent drop in the company’s North American market share this year. Last September, Moody’s Investors Service upgraded GM’s credit rating to investment grade, but S&P kept its rating one notch below that at BB-plus.
S&P also said it would consider “a negative rating action” if “recall-related developments become worse than we expect.”
The ratings agency said it expects to see several billion dollars of cash outflows from recall-related costs, fines and settlements during the next several years, but notes that GM has a $28 billion cash stockpile to withstand that.
GM wouldn’t comment on the S&P note.
In afternoon trading, GM shares were down $1.32, or 4 per cent, to $31.98.