Re: U.S.A.:Ford's credit rating cut to lowest investment grade
Rating cut challenges Ford
S&P drops automaker to step above junk; firm says move doesn't reflect improvements
By Bill Vlasic / The Detroit News
Behind the downgrade
Key factors that were weighed in Standard & Poor's decision to lower Ford's credit rating Wednesday:
* Significant presence in major North American vehicle segments, notably midsize, large and luxury SUVs, full-size pickups
* Profitable financial services unit
* Substantial liquidity and cash reserves
* Overly dependent on profits from light trucks, North American auto business
* Growing competition in key U.S., European markets
* Unfunded pension and retiree medical liabilities
Source: Standard & Poor's
DEARBORN -- Ford Motor Co.'s long-term credit rating was cut Wednesday by Standard & Poor's in a move that questioned the No. 2 U.S. automaker's turnaround and profit prospects next year.
The ratings on $180 billion in debt were downgraded by S&P to a level of BBB-, just one rung above junk status. The ratings are the lowest S&P has ever assigned Ford and lower than those of General Motors Corp. and DaimlerChrysler AG.
Ford's chief financial officer immediately challenged the downgrade and said the move did not reflect improvements in Ford's cost structure and business plans.
"We do not believe it accurately reflects the state of our business and the actions we have taken," Ford CFO Don Leclair said.
Despite the downgrade, the announcement quelled fears on Wall Street that S&P's move would be more severe. S&P said the company's outlook is now stable, preserving its investment-grade status. In New York Stock Exchange trading Wednesday, Ford's share price rose more than 6 percent to close at $13.06 -- its highest level in more than a year.
The automaker still expects to make $7 billion in annual pretax profits by mid-decade, the goal it outlined after losing $6.4 billion in 2001 and 2002.
However, S&P analyst Scott Sprinzen said that sky-high U.S. marketing costs and lingering troubles in Ford's European operations will crimp the automaker's profits going forward.
"It is our expectation that there will be limited improvement over the financial performance of this year," Sprinzen said.
It appears unlikely that Ford's rating will drop to junk level -- below investment grade -- within the next two years. If that happened, Ford's ability to sell bonds and raise money would be hurt. Ford and its finance arm are the biggest U.S. corporate borrowers and often set the tone for the broader corporate bond market.
"We're cutting the company some slack," Sprinzen said. "We don't see a significant probability of a future downgrade, but if need be, we'll reassess that."
Leclair said the cut from a BBB rating to BBB- will have little impact on the company's operations or its ongoing revitalization plan.
"Bottom line, we are a stronger company than we were last year and a much stronger company than we were two years ago," he said.
In a note to employees, Bill Ford Jr. said the downgrade was disappointing but should not slow the company's turnaround effort.
"The most powerful argument we can make against a lowered rating is to continue accelerating our efforts and improving our performance," he wrote. "We need a sense of urgency, but also a sense of confidence."
Ford is working to slash $3 billion in costs and replenish its aging lineup of passenger cars and light trucks.
But even with the introduction of the new F-150 pickup, S&P cast doubt on whether Ford can hold market share in the increasingly competitive pickup and sport utility segments.
"The rich profit margins associated with these products are increasingly attracting the interest of non-U.S.-based competitors," S&P said.
While GM and DaimlerChrysler face the same product assault from Asian and European rivals, S&P believes Ford is most vulnerable to market share losses.
"Both (Ford and GM) have lost market share this year, but in the case of Ford, it's a continuation of a five-year trend," Sprinzen said. "GM's market share has stabilized (and) we have greater confidence in GM's product-development capabilities."
Ford beat Wall Street earnings projections in the third quarter, and last month raised its 2003 profit outlook to between 95 cents and $1.05 a share from 70 cents.
Leclair said the launch of 14 new products next year will boost earnings on the automotive side.
"Our plan shows improved profitability overall and improved automotive profitability in 2004," he said.
Leclair also said the Ford's troubled European operations will make a "small" profit in the final quarter of this year, excluding one-time charges to cut 5,000 jobs in Germany, Belgium and the United Kingdom.
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....