NEW YORK - July 22, 2008 - General
Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, have about a
46 percent chance of default within five years, according to Edward Altman, a
finance professor at New York University's Stern School of Business.
“Both are in very serious shape and the markets reflect that,” Altman, the creator of the Z-score mathematical formula that measures bankruptcy risk, said in an interview with Bloomberg Television. The model shows that these companies are “on the verge of bankruptcy,” he said.
The Z-scores for GM and Ford give both a bond rating equivalent to a CCC ranking, though GM is in slightly worse condition than Ford, Altman said. GM reported a $38.7 billion loss in 2007, the biggest in its 100-year history, and hasn't posted a profit since 2004. The scores are based on the companies' finances at the end of the first quarter.