Standard & Poor’s and Moody's Tuesday lowered their credit ratings on Ford Motor, with S&P citing the “seemingly relentless deterioration in Ford’s North American automotive operations."
The ratings agency lowered its outlook on Ford’s credit to ‘B’ from ‘B+’, noting that the company’s North American business is expected to remain unprofitable until at least 2009.
“The array of challenges that have plagued Ford in recent years – market-share erosion, adverse product mix trends, and high dealer inventories and raw material costs – have continued to worsen in 2006 or even accelerate, leading to a higher-than-anticipated use of cash since we last lowered Ford’s ratings in June,” S&P analyst Robert Schulz said. “We expect that 2007 will also be a challenging year for cash usage.”
Schulz said the expanded cost reductions in North America announced recently by Ford won’t likely gain much traction until next year.
Schulz said he was particularly concerned about the steep falloff in the full-size pickup truck market recently. Ford’s F-series pickups – which S&P said represent one-third of Ford-brand sales and a higher share of profitability – were down 12 percent through the first eight months of this year.
Ford’s North American market share dropped to 17.7 percent through August from 18.3 percent at the end of 2005, and the pace of decline is seen worsening through this year and into next as a result of production cuts and discontinued models.
“The rapid erosion in Ford’s automotive performance will reduce the company’s cash balances and leave it more exposed to additional adverse market developments during the next two years, whether Ford-specific or industry-wide,” Schulz said.
The good news for Ford is that S&P doesn’t expect the company to be pushed to the point where it will need to restructure its finances, given its liquidity and management’s goal of turning around Ford’s operations without resorting to a financial restructuring.
Meanwhile, Moody's Investors Service lowered Ford's rating to B3 from B2 and the rating of its financing arm, Ford Motor Credit Co., to B1 from Ba3.
