General Motors Corporation and Ford Motor Company, the two biggest American automakers, had their credit ratings reduced to junk-bond status by Standard & Poor’s, slashing the value of $375 billion in debt and causing their shares to drop.

S&P cut GM two levels to BB from BBB- today. Ford was lowered one level to BB+ from BBB-.The automakers may be unable to address “competitive disadvantages” such as their reliance on sport-utility vehicles, S&P said in a statement yesterday.

GM and Ford are losing market share to Asian rivals including Toyota Motor Corporation, and struggling to control soaring retirement and health-care costs. They are the biggest companies to have their credit lowered to high-yield, high-risk ratings, exceeding WorldCom in 2002 and dealing a blow to insurers and pension funds that hold their debt.

“This is an unprecedented earthquake” in the corporate bond market, a vice president of fixed-income at Morgan Keegan in Memphis, Tenn., Pete Hastings, said.

Detroit-based GM’s share of the American auto market was 25.6% in the first four months, according to Autodata Corporation, an 80-year low and down from 27.3% in the same period of 2004. Dearborn, Mich.-based Ford’s share fell to 19.2% from 20.3%. Toyota rose to 13.3% from 11.8%.

“GM and Ford have been losing market share for years and costs have been rising, so the writing was on the wall,” said Mirko Mikelic, a senior portfolio manager who oversees $14 billion in bonds at Fifth Third Asset Management in Grand Rapids, Mich. “We’ve been selling out of Ford and GM since the beginning of the year, but we still have quite a bit and there will be some of our accounts that will be required to sell” because of the cut to junk.

GM is “disappointed” with S&P’s decision to lower the credit rating, and the company and its finance unit have adequate cash and liquidity to fund their businesses “for the foreseeable future,” said a spokesman, Jerry Dubrowski, reading from a prepared statement. “We disagree with S&P’s action today,” Ford said in a statement.

Moody’s Investors Service rates GM Baa3, and Ford two levels higher at Baa1. Fitch Ratings has GM at BBB and Ford at BBB+. GM last had top AAA ratings from S&P in 1981, while for Ford it was 1980. According to S&P, companies rated BB have “major ongoing uncertainties” which could lead to “inadequate capacity” to meet financial obligations.

“Our ratings are determined by our own analysis and expectations and not driven by the actions of other rating agencies,” a Fitch auto analyst, Mark Oline, said in an interview.

Shares of GM fell about 6%, or $1.94, to $30.86 on the New York Stock Exchange. Ford shares dropped more than 4%, or 46 cents, to $9.70.

The cost to insure the debt of GM and Ford against default rose. The annual cost of insuring $10 million of GM debt for five years increased to around $865,000 from $790,000 this morning, while Ford debt insurance costs increased to about $690,000 from $575,000 before the news, according to prices by credit derivatives broker GFI Group in New York.

The cuts rattled financial markets. The Dow Jones industrial average, which was little changed when S&P announced the GM downgrade at 12:38 p.m. New York time, fell more than 80 points within a half hour. Treasuries rose as investors sought a haven.

“It was a surprise in terms of the timing,” said Susanna Trostdorf, an auto-bond analyst at Henderson Global Investors in London, which oversees about $132 billion. “We haven’t seen any news flow which suggested this might happen so soon. GM was expected in June and Ford even later.”

S&P’s decision to cut GM to junk may force the bonds into Lehman Brothers Incorporated’s benchmark high-yield index, where they would account for about 6.6% of the total market value, which was about $591.6 billion yesterday. The overall size of the corporate bond market is about $2.4 trillion.

Nicholas Gendron, the global head of Lehman’s bond-index group, didn’t immediately return calls and e-mails for comment. About 90% of institutional investors use the Lehman indexes to set bond holdings, according to the company.

S&P called GM’s credit rating “tenuous” and assigned a negative outlook less than three hours after the automaker’s loss forecast on March 16. S&P said then the rating could be cut “at any point” if it doubted “GM was on a trajectory to improving its financial performance to more satisfactory levels in 2006 and beyond.”

“No one should have been taken by surprise,” an S&P auto analyst, Scott Sprinzen, said yesterday on a conference call with investors. “There’s been a clear deterioration in the market mix and a pronounced weakness” in their sport-utility vehicle business, he said.

The analyst later said in an interview that a cut had been considered “for months” and that he isn’t pointing to management as the reason for the reduction.

GM, with about $300 billion in notes, bonds, loans, and asset-backed securities as of December 31, and Ford, with about $151 billion, are the biggest companies cut to junk. The former biggest so-called fallen angel was WorldCom, which had $30 billion of bonds cut to speculative grade on May 10, 2002. GM’s cut affects about $200 billion of debt.

Concern about a weakening financial condition has increased the companies’ borrowing costs at a time when they are trying get a handle on rising health care costs and regain market share.

Meanwhile, Ford’s falling sales contributed to a 38% decline in first quarter profit, to $1.21 billion. The company is now forecasting a likely second-quarter loss and doesn’t expect to make money on its car business this year. Ford has lost market share in America, its largest market, for 26 months.

“We now expect full-year market share in the U.S. to be down compared to a year ago,” Chief Financial Officer Don Leclair said on an April 20 conference call.

Mr. Leclair cited a “shift away from traditional SUV segments” for the decline. Sales of the company’s Explorer mid-size sport-utility vehicle, the bestselling SUV in the country, fell 23% during the first four months of 2005. The Expedition large SUV declined 25%, and the Mercury Mountaineer, a twin of the Explorer, fell 23%.