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U.S. automotive giants General Motors and Ford Motor Company are facing record losses as they work to restructure under a threat of bankruptcy.
Professor Robert Altman of NYU’s Stern School of Business told Bloomberg that “both are in very serious shape and the markets reflect that.” According to Prof. Altman’s mathematical formula for measuring risk, both companies are “on the verge of bankruptcy.”
Looking at the bond rating—an investor’s guide to the viability and stability of a publicly traded company—both companies hold B ratings, which are expected to go lower. With an AAA rating being the highest and most reliable of scores, moving down from a B rating would bring Ford and GM closer to default.
Posting a $38.7 billion loss in 2007, GM’s troubles appear to stem from circumstances in the market. With the high cost of fuel, the company was slow to react to the higher demand for fuel efficient vehicles, and instead continued producing larger SUV’s, trucks, and commercial vehicles.
This large loss and the bankruptcy of a major part supplier—combined with the fact that GM has not turned a profit since 2004—place the company in what appears to be a real threat of bankruptcy, according to Prof. Altman.