General Motors Corp. and Ford Motor Co. have about a 46% chance of default within five years, according to Bloomberg .


Edward Altman, a New York University Stern School of Business professor, told Bloomberg that these auto companies are on the verge of bankruptcy based on their Z-scores, a mathematical formula that Altman created to measure bankruptcy risk.


The Z-scores for GM and Ford, which were based on 1Q finances, give both a bond rating equivalent to a 'CCC' ranking, though GM is in slightly worse condition than Ford, according to Altman. GM reported a $38.7 billion loss in 2007, the biggest in its 100-year history, and hasn’t posted a profit since 2004.


Moody's Investors Service said July 15 it may cut GM's 'Caa1' senior unsecured debt rating because the automaker's plan to raise at least $15 billion by suspending its dividend, cutting management payroll by 20% and selling assets may not be enough to offset losses.


Standard & Poor's also said in June it may lower GM's 'B' rating. Altman said the plan is to raise $15 billion may improve GM's outlook.

Ford is rated ‘Caa1’ by Moody's and ‘B’ by S&P, which said in June that Ford's rating may also be cut.

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