CHICAGO (AFP) -- "Time is short" to fix the financial woes of General Motors Corp. and Ford Motor Company, credit rating agency Standard and Poor's warned Thursday.

Both automakers are facing unprecedented operational and financial challenges as a result of a sharp drop in market share and the shift away from profitable but gas-guzzling sports utility vehicles, S and P said in a research report. "In the next 18 months - leading up to crucial labor negotiations - both companies must demonstrate progress in turning around their North American operations," S and P credit analyst Robert Schultz wrote. "These turnarounds will be difficult."

GM could be forced to enter bankruptcy protection despite substantial current liquidity and statements by management that performance is expected to improve, Schultz warned. While Ford has "considerable protection" against the risk of bankruptcy, it is nonetheless "highly subject to the pricing actions of competitor GM and could suffer from further turmoil at GM."

S and P said it did not expect any significant concessions from the United Auto Workers ahead of the fall 2007 contract talks and warned that the high stakes of the negotiations could lead to a strike.

The ratings agency also warned that GM and Ford could see their market share slip further in 2006.

"Despite a favorable backdrop of relatively high employment and low financing rates, U.S. automakers, in our opinion, will collectively lose market share to foreign manufacture again in 2006, particularly in the luxury vehicle category," Standard and Poor's equity analyst, Efraim Levy said in a statement ahead of the publication of a report next week.

Levy warned that Ford and GM will also face pressure on their profit margins as a result of higher retiree and health-care costs and a shift away from SUVs.