Ford Motor Co.’s weakened credit profile will likely have negative implications for its access to funding and financing volumes after a downgrade by Moody’s Investors Service this week. The downgrade moved Ford’s rating to non-investment speculative-grade status.
Moody’s said an upgrade for Ford is “unlikely in the near term,” as margins are expected to remain weak through 2020. Ford Credit’s loan and lease portfolio declined 4.7% last year to $74.5 billion, according to Big Wheels Auto Finance data. In June, Ford Credit’s volume of units financed decreased 22.7% year over year, according to Experian data.
In addition, Ford Motor Co.’s increased focus on its $11 billion restructuring plan sparked the downgrade. Ford’s plans include a reorganization of South American and European operations, in addition to revitalization efforts in China, where Ford has made progress in lowering costs.
“Ford is undertaking this restructuring from a weak position as measures of cash flow and profit margins are below our expectations, and below the performance of investment-grade rated auto peers,” Moody’s noted. In fact, Ford’s rating could be downgraded further if its global restructuring plan fails to contribute to a steady improvement in performance metrics.
“However, efforts to regain lost share, rebuild market presence, and restore meaningful profitability will be much more difficult to achieve because the Chinese market is becoming more competitive, and near-term growth rates are likely to be less robust than in the past,” Moody’s added.
Yet, the rating agency is keeping an eye on Ford Motor’s alliance with Volkswagen as a credit strength. “The alliance with Volkswagen AG will provide important long-term benefits to Ford’s position in electric vehicles, autonomous vehicles and commercial vehicles,” Moody’s noted. “Nonetheless, Moody’s anticipates a minimal impact on Ford’s earnings and cash generation before 2022.”
Ford Motor stock [ticker: F] is trading at $9.32 per share, down 2.4% for the day, at 2:30 pm ET.
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