Moody's may cut GM, Chrysler on falling SUV demand

NEW YORK (Reuters) - Moody's Investors Service on Tuesday said it may cut its ratings on General Motors Corp GM.N and Chrysler Automotive LLC deeper into junk territory, citing challenges in restructuring their business away from high-profit trucks and sport utility vehicles (SUVs).

Automakers including GM and Chrysler are struggling to shift their vehicle designs as demand for the gas-guzzlers slumps amid rising gas prices.

The reviews for possible downgrade of both companies will focus on how their operational initiatives will address the U.S. auto market's shift away from trucks and SUVs and toward cars and crossover vehicles, as well as weakness in overall demand, Moody's said in a statement.

Moody's also said it is maintaining a negative outlook on Ford Motor Co (F.N) ratings for the same reasons, but said the company's liquidity affords it key financial flexibility.

A negative outlook indicates the likely direction of the rating over the next 12 to 18 months.

Moody's has a corporate family rating on all three companies of "B3," six notches below investment grade, and rates their senior unsecured debt one notch lower at "Caa1."

LIQUIDITY PLANS

GM on Tuesday announced a plan to cut costs by $10 billion, and sell up to $4 billion in assets in a bid to shore up cash.

The hurried restructuring, GM's second in just six weeks, was forced by high fuel prices, a consumer shift away from low-mileage trucks, the weakest U.S. auto sales in a decade, and growing investor doubts about the automaker's ability to ride out the downturn.

Moody's said it will evaluate to the degree to which GM's initiatives will cover substantial cash requirements the automaker will face until it adjusts its production and pricing structure to accommodate declining demand for trucks and SUVs.

"Despite the very constructive nature of the initiatives announced by GM, the company will continue to face the significant challenge of building enough profitability in its car and crossover portfolio to make up for the earnings that will no longer be generated on the truck and SUV side," Moody's said.

"Establishing an adequate level of profitability throughout a car portfolio that has historically been priced at a significant discount relative to competing models from Asia will be a difficult and long-term undertaking," Moody's added. "GM will likely face a sizeable cash burn until it gets this part of the equation right."

Moody's said that GM has sufficient liquidity to cover all requirements over the coming 12 months, but that the magnitude and duration of its cash burn is not supportive of high junk ratings.

GM's 8.375 percent bond due 2033 fell 4 cents on the dollar on Tuesday, to 51.5 cents, according to MarketAxess.

(Reporting by Karen Brettell; editing by Gary Crosse)