Ford Captive Receives ‘Negative Outlook’ by Moody’s Citing OEM’s Headwinds

Moody’s Investor Service gave Ford Motor Credit a “negative outlook” and downgraded the lender one ranking above a non-investment grade status this week, but the score is largely driven by risks in the parent manufacturer’s business, Jason Grohotolski, vice president and senior credit officer in Moody’s financial institutions group, told Auto Finance News.

The report noted an erosion in Ford Motor Co.’s global business position — especially in China — and the significant time and cost it will take to implement an $11 billion restructuring plan over the next three to five years.

Although Ford Credit operates separately on the secondary market and remains independently stable, Moody’s typically ties the lender’s rating to the OEM’s because ultimately the two are intrinsically linked.

“When we do the standalone analysis of Ford Credit we find them consistent to where they have been for several years,” Grohotolski said. “They made comments regarding the size of the portfolio that they plan to maintain [current volumes]. That will likely allow them to maintain their credit risk profile consistent with where it is today.”

Ford has maintained investment grade status for six years and is now one step from falling into a speculative grade. The OEM was the one U.S. automaker who was able to avoid bankruptcy during the financial crisis.

The OEM’s sales in China have been the worst ever though the first half of the year and in the U.S. the company decided to abandon nearly all of its sedan models. It’s a reminder that these issues at the parent company have effects on the lender.

“Funding costs have the potential to increase and if that were to occur it could have negative implications to [Ford Credit’s] profitability as interest expenses go up,” Grohotolski said. “As far as what that means for origination volume, they have indicated where they would like to be from a portfolio perspective and I don’t think the consequence of our rating would cause them to deviate from that plan.”