Capital Markets

Moody’s Downgrades Ford, but Not to Junk

Automaker has a split rating after last week's downgrade by Standard & Poor's.
Stephen TaubMay 13, 2005

Moody’s Investors Service cut Ford Motor Co.’s debt rating but kept it at investment grade.

The agency reduced the auto giant’s rating to Baa3 from Baa1, and Ford Motor Credit Co.’s rating to Baa2 from A3. Ford Credit’s Prime-2 short-term rating was affirmed. Moody’s also lowered subsidiary Hertz Corp.’s long-term rating to Baa3 from Baa2, and its short-term rating to Prime-3 from Prime-2. The outlook for Ford and Ford Credit is negative; the outlook for Hertz is “developing.”

“The downgrade of Ford’s ratings recognizes that the company will fall significantly short of the benchmarks identified by Moody’s during October 2004,” Moody’s stated in a press release. Those benchmarks included $4 billion in 2006 automotive profit before tax; stabilizing North American market share above 19.5 percent; and “remaining on track for delivering more robust credit metrics in 2006 and beyond.”

Moody’s action leaves Ford with a split rating; earlier this month, Ford and General Motors Corp. were downgraded to junk by Standard & Poor’s. Analysts, traders, and investors are now looking for Fitch Ratings to break the tie.

Notwithstanding the challenges facing the company, Moody’s added that it “recognizes that Ford has continued to make progress in key financial and operational areas.” The agency acknowledged that Ford has exceeded cost-reduction targets established in 2002, is introducing new products as planned, and is improving its position in the CUV (smaller crossover vehicle) segment.

Moody’s also noted that Ford’s liquidity remains very strong, with $23 billion in cash, securities, and short-term voluntary employee beneficiary association balances as of March 31.

Meanwhile, at yesterday’s annual meeting chairman and chief executive officer Bill Ford said he will forego all compensation until the company is sustaining profitability, according to the Associated Press.