GM shares and bonds fell on the news, which could lead to it paying more to borrow in the future and complicate its attempt to cut costs.
GM and U.S. rival Ford Motor Co. (F), which are both suffering because of soaring health care costs, higher gasoline prices and loss of market share to Asian competitors, were downgraded to junk, or non-investment-grade status, by Standard & Poor's (search) earlier this month.
Fitch Ratings cut by one level the senior unsecured debt ratings of the world's largest automaker and its finance arm, General Motors Acceptance Corp., to BB+ from BBB-. Fitch said the move reflects a decline in GM's North American sales of mid-size and large SUV products and increasing competition in the large pickup market.
The ratings company also cited declining profitability and a lack of tangible progress in attacking manufacturing and legacy costs, which will result in negative cash flow through at least 2006. Its ratings outlook for GM remains negative.
In addition to raising borrowing costs for GM, Fitch's decision effectively robs the automaker of its investment-grade status in the widely watched Lehman Brothers Credit Index.
Lehman Brothers plans in July to eject from the index those members whose average rating at Fitch, S&P and Moody's Investors Service is junk. The exclusion would bar many institutional investors from holding the debt.
GM shares fell 85 cents, or 2.6 percent, to $31.74 in afternoon trading on the New York Stock Exchange. Debt of the company also fell. GM's 8.375 percent bonds maturing in 2033 -- the $3 billion issue is considered a benchmark of the automaker's long-term debt -- fell to 71 cents on the dollar from 73.5 cents before the move by Fitch, according to bond-pricing service MarketAxess.