Ford Credit capital stable despite OEM’s maxed out credit

Ford Motor Credit’s liquidity will not be impacted by its OEM’s decision this week to increase its cash flow position and suspend dividends in response to COVID-19, the captive’s spokeswoman Margaret Mellot told Auto Finance News in an email.

“Those announcements were related to the Ford [Motor] dividend to its shareholders and the Ford [Motor] business, not related to Ford Credit,” Mellot explained. The captive boasts a $75 billion portfolio, according to Big Wheels Auto Finance Data.

In an effort to “bolster the company’s cash position” amid the coronavirus pandemic, Ford Motor notified lenders Thursday that the OEM will borrow the total unused amounts on two credit lines, $13.4 billion under its corporate credit facility, and $2 billion under its supplemental credit facility, totaling an additional $15.4 billion in cash reserves.

Ford Motor has regularly described targets of having $20 billion in cash and $30 billion in liquidity heading into an economic downturn, the OEM noted. Those levels were $22 billion and $35 billion, respectively, by yearend 2019.

The additional cash will be used to offset losses due to coronavirus-related production shutdowns, and “preserve Ford’s financial flexibility,” the OEM noted. In fact, as Ford Motor prioritizes near-term financial flexibility through suspending dividends, the OEM will continue its investments in its series of new-product launches in 2020.

General Motors, Harley-Davidson and Volkswagen are the fellow major OEMs “under a microscope” to suspend dividends too, according to Rimmi Singhi, an analyst at Zacks.

Ford’s stock (NYSE: F) has been hovering around its market opening price of $4.53 per share as of 11:25 a.m. ET, after a strong opening earlier in the morning. Ford’s stock has been on a downward trajectory during the last month, losing nearly half its value.