May 3 (Bloomberg) -- Borrowing costs for Germany's DaimlerChrysler AG, the world's fifth-largest automaker, and France's Renault SA are rising less than those of General Motors Corp. because investors expect the two companies will keep their investment-grade credit ratings.

Concern that ratings on GM's 21 billion euros ($27 billion) of debt would be cut to junk sent bonds tumbling. The extra yield, or spread, above government debt that investors demand to hold DaimlerChrysler's bonds widened about 46 basis points last month, about half as much as on GM's, according to Merrill Lynch & Co. data. Spreads on Renault's bonds widened by about 8 basis points. A basis point is 0.01 percentage point.

Profit to ``U.S. carmakers is what the moon was to NASA in the 50s,'' said Elmar Zurek, a fund manager specializing in auto and defense company bonds at DWS Investment Management in Frankfurt, which oversees about $189 billion in assets. ``European carmakers are more stable than their U.S. rivals.'' He declined to comment on his holdings.

Widening spreads indicate an increase in borrowing costs relative to government debt. The difference suggests European automakers would pay at least 5.3 million euros less than GM in annual interest costs for every 100 million euros borrowed, according to Bloomberg calculations.

Moody's Investors Service, Standard & Poor's and Fitch Ratings said in March slowing sales may result in GM's credit rating being lowered to high-risk, high-yield status. GM's bonds are rated Baa3 by Moody's and BBB- by S&P and Fitch.

`Helped Bonds'

Renault, based in Boulogne-Billancourt, France, is rated Baa1 by Moody's and an equivalent BBB+ by Fitch and S&P, which raised the grade one step on April 7. Stuttgart, Germany-based DaimlerChrysler's debt is rated A3 by Moody's and BBB by S&P. Fitch gives it a BBB+ rating.

The spread on Renault's 6.125 percent bonds due 2009 widened 3 basis points in April to 52 basis points, Merrill Lynch's EMU Corporate Index shows. By comparison, the spread on GM's 4.75 percent bonds due 2009 widened 167 basis points to 596 basis points. The difference means Renault would pay about 5.4 million euros in annual interest less than GM should each company sell 100 million euros of bonds.

``Some of the investors who have to be in the auto sector and are selling GM may have focused more these last few weeks on our bonds,'' said Nicolas Duc, head of long-term funding at RCI Banque in Paris, Renault's funding unit. ``The demand has probably helped our bonds a bit.''

`Much Better Footing'

DaimlerChrysler on April 28 reported better-than-expected first-quarter earnings, with net income falling 124 million euros from a year earlier to 288 million euros, compared with a 151 million-euro loss forecast by analysts surveyed by Bloomberg News. The company said operating profit excluding costs to reorganize its Smart unit will rise ``slightly'' this year.

``The European manufacturers are on a much better footing in terms of their competitiveness,'' said Susanna Trostdorf, auto bond analyst at Henderson Global Investors in London, which oversees $132 billion.

Detroit-based GM on March 16 forecast its biggest quarterly loss in 11 years as sales fell and health-care and pension costs rose. On April 19, the carmaker said it lost $1.1 billion in the quarter and scrapped its forecast for 2005. The company's health- care costs have surged 33 percent in the past five years.

`Health-care Problem'

``The problem with the American names is the health-care costs, and these problems don't exist for the European names,'' said Bernard Lalier, who helps manage about $4.5 billion in fixed income as a portfolio manager at Petercam SA in Brussels. Laliere has fewer auto bonds than the benchmark indexes he uses to gauge his performance.

The 95 basis-point spread on DaimlerChrysler's 4.125 percent bond due 2009 means the company would pay about 5 million euros less in annual interest on a 100 million-euro bond sale. Spokesmen at GM and DaimlerChrysler declined to comment.

Renault in the second half of 2004 had a ratio of debt to earnings before interest, taxes, depreciation and amortization of 5.92 percent, according to Bloomberg data. DaimlerChrysler's was 5.09 percent in the first quarter. GM's was 20.2 percent, the data show.

GM's announcement and the threat of a downgrade spurred the worst two months ever for automakers' euro-denominated debt.

Since March 1, spreads on the securities widened 120 basis points, according to Merrill Lynch's EMU Corporates, Auto Group index. By comparison, the firm's broader investment-grade corporate bond index widened 17.6 basis points.

Renault comprises 5 percent of Merrill Lynch's automaker index, DaimlerChrysler 13 percent and GM 21 percent. The whole index declined 2.96 percent in April, compared with a 1.1 percent gain for the broader corporate bond market.

`Better Opportunities'

For investors such as Etienne Gorgeon, who manages about $5 billion euros of corporate bonds at Axa Investment Managers in Paris, the bonds of automakers are still too risky to buy.

``There are better opportunities elsewhere,'' said Gorgeon, who holds ``very, very little'' automaker debt. ``It's a very difficult, highly competitive market.''

Spreads on European automaker bonds may widen further, as sales sputter and costs rise, according to Cyril Benayoun at BNP Paribas SA in London.

Renault said in February profit may fall to as low as 4 percent of sales this year from 5.2 percent in 2004 on higher steel and plastics prices. The company's profit rose in the second half of 2004.

``There's no recovery in demand in Western European auto sales, and there's a squeeze on costs with raw material prices rising,'' Benayoun said. ``Pressure on the European and U.S. makers is unlikely to change anytime soon, and that will put further pressure on spreads.''

Investors holding Renault's bonds lost 1.27 percent in April while those holding DaimlerChrysler debt lost 1.48 percent. By comparison, GM's euro-denominated debt lost investors 8 percent.

To contact the reporters on this story: Jennifer Ryan at Jryan13@Bloomberg.net; Melanie Bull at mbull1@bloomberg.net.

Last Updated: May 2, 2005 19:12 EDT