June 28 (Bloomberg) -- Ford Motor Co., its credit rating cut deeper into junk territory by Standard & Poor's, this week for the first time became a bigger risk of default than General Motors Corp., credit derivatives show.

Investors are paying $980,000 a year to insure $10 million of Ford debt against default for five years with credit default swaps. Similar protection for GM costs about $970,000, according to JPMorgan Chase & Co. prices.

Prices for Ford default swaps are rising on speculation the company has farther to go in its turnaround than GM. S&P slashed Dearborn, Michigan-based Ford's rating to B+, or four levels below investment grade, from BB-. It has a B rating for GM.

``This will be a more difficult year for Ford than previously anticipated especially if sales actually decline rather than remain somewhat robust,'' Robert Schulz, S&P's auto analyst, said on a conference call today with investors. He added that GM was ahead of Ford on cost reductions.

The cost to protect Ford debt from nonpayment is up from a low of about $777,000 on Feb. 2, while for GM it's down from a high of $1.3 million in January.

Ford credit default swap prices rose above GM for the first time yesterday, according to data compiled by GFI Group Inc., a derivatives broker in New York. They were even on June 23 and GM traded at a higher price than Ford on June 26, GFI data shows.

Rising investor confidence in GM showed up in the credit derivatives market this month when dealers stopped demanding upfront payments to take the risk of a default.

GM's `Better Job'

``The market recognizes GM is doing a better job of addressing its structural problems in the U.S. than Ford is,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. ``Ford has a little better liquidity but that's because GM is spending its money to fix the problems.''

GM and Ford are the two biggest junk-rated companies. GM and its units had $277 billion of notes and loans payable of as of the end of March, while Ford had $151.1 billion, according to Securities and Exchange Commission filings. Junk bonds are rated below BBB- by S&P and Baa3 by Moody's Investors Service.

Ford's total U.S. vehicle sales fell 3.5 percent through May this year. Its market share dropped 0.6 percentage point to 18.5 percent, as Toyota Motor Corp. and Honda Motor Co. gained. The company plans to cut 30,000 jobs and close 14 North American manufacturing facilities by 2012.

Even with Ford's restructuring plan, ``we expect the company's financial profile to weaken further during 2006 -- a period when the U.S. economy and U.S. light-vehicle sales are robust,'' S&P said today.

Higher Yields

Ford's last two trips to the bond market have been more expensive for the automaker, an indication investors anticipated a ratings cut or worsening business conditions.

Last week, Ford's finance unit sold $3.75 billion in asset- backed bonds after adding investor safeguards to ensure repayment and insulate them from losses at the parent company.

Last month, Ford Motor Credit paid its highest U.S. interest rate to exchange debt and allow it to postpone paying $2.5 billion for more than four years. Ford Credit offered investors $2.5 billion of bonds due in 2010 and 2011 that pay annual interest of as much as 10.6 percent, exchanging the debt for bonds with coupons as low as 4.95 percent.

GM's offer of buyout and retirement incentives was accepted by 35,000 workers, allowing it to trim annual spending by $1 billion more than planned and shed the workers two years ahead of schedule. The company is also close to completing the sale of a 51 percent stake in its finance unit, netting $7.4 billion.

Shares of Ford are down 18 percent this year, compared with a rise of 37 percent for GM.

To contact the reporter on this story: John Dooley in New York at jdooley@bloomberg.net.

Last Updated: June 28, 2006 16:40 EDT