General Motors' woes worsened yesterday when its debt rating sank deeper into "junk" territory after US car sales sank to a seven-year low in October.
The decision by Moody's to downgrade GM's bonds to the middle range of the high yield market reflected market uncertainty as to whether the group - which is still the world's biggest carmaker even though Toyota is catching up rapidly - can engineer a financial recovery.
Some £17 billion of long-term unsecured debt was cut by two notches from Ba2 to B1, the fourth highest junk rating.
Benchmark bonds with an eight per cent coupon due in 2033 fell to 73.3 cents on the dollar from 74.4 cents on Monday.
Moody's said the outlook on GM was negative, reflecting "a number of near-term challenges that could further pressure the rating".
GM has lost some £2.5 billion so far this year as sales slump, pension and healthcare costs skyrocket and Far Eastern rivals make deep inroads into a hitherto patriotic US car market.
Soaring petrol prices are finally weaning Americans off their beloved gas-guzzling SUVs and pickup trucks in favour of more economical, foreign models.
GM and Ford both saw sales fall by more than a quarter in October and Detroit's overall share of the market hit a low of 52.4 per cent, down from 57 per cent a year ago and 70 per cent in 1999.
Industry-wide sales weakened to a seasonally adjusted annual rate of 14.7 million units, according to industry tracking firm Autodata.
That was well below the 16.9 million rate in October 2004 and the lowest since August 1998.
Last month's figures confirmed what many analysts had predicted - the deep discounting that GM and Ford resorted to during the summer when they extended generous employee discounts to all customers may have boosted sales but only at the expense of future months.
Toyota, in contrast, captured a record 15 per cent of the market although Far Eastern brands overall were down by four per cent in a market reeling from the aftermath of hurricanes Katrina and Rita and general economic uncertainty.
The Japanese giant is already the world's most profitable automotive group and is likely to overtake GM in volume next year.
In response to Moody's announcement, GM yesterday said it was "working aggressively to restore North American operations to profitability as quickly as possible".
Plans include a new agreement with the powerful UAW carworkers' union on healthcare provision, cost cuts of £2.8 billion a year by the end of 2006 and achieving 100 per cent capacity utilisation by 2008.
Veteran industry analyst Maryann Keller said of October's sales figures: "This is a perfect storm for the auto industry,"
However, another commenator, Steve Stanley of RBS Greenwich Capital, predicted that an upturn could be imminent.
"My guess is that sales will return to modestly below trend in November and then spike in December, on the back of the next big wave of incentives," he said. "December as repeatedly been a big month for auto sales and I suspect that manufacturers will slash prices to generate some positive momentum."
