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FCA inches closer to investment grade after Moody's upgrade

Nora Naughton
The Detroit News
Moody's upgraded Fiat Chrysler Automobiles to the highest level of "junk" status, putting the automaker one level below investment grade. The move by Moody's is based on improving profitability driven by sales of the Jeep and Ram brands.

Moody's Investor Services is the latest credit agency to improve Fiat Chrysler Automobiles NV's credit rating as the success of the Jeep and Ram brands drives profits for the Auburn Hills-based automaker.

Moody's upgraded FCA to the highest level of "junk" status, putting the automaker one level below investment grade. The move by Moody's matches an upgrade made in February by S&P. Fitch, the third credit rating service used by investors, upgraded FCA to investment rating in November.

The automaker's improved credit rating was partially driven by the success of its SUVs and pickup trucks in North America, which is improving the automaker's profitability, Moody's said. FCA shifted away from the U.S. car market in 2016 to focus on building the success of its valuable Jeep and Ram brands.

FCA has also made significant efficiency improvements. Moody's cited the expected growth of FCA's net industrial cash position from 0.4 billion euros at the end of the first quarter to 4 billion euros by the end of 2019 as part of its ratings rationale.

"FCA's upgrade reflects the continued improvements in its credit metrics and Moody's expectation that FCA will be able to sustain these credit metrics even in a more challenging environment with softening demand in some of its key markets and additional costs to comply with upcoming emission requirements," Falk Frey, the Moody's lead analyst for FCA, said in the note.

Moody's says these structural improvements will make FCA more resilient through an industry downturn. 

The upgrade comes amid slumping U.S. sales for FCA, which have fallen 4% in the first four months of this year on declining deliveries for all of its brands but Ram.

Fiat Chrysler reported a $567 million (508 million euro) profit in the first quarter, slipping 47% in what the automaker said would be its worst quarter this year. FCA reaffirmed its forecast of full-year earnings before interest and taxes of $7.5 billion (6.7 billion euros).

Even one of FCA's self-proclaimed weaker points — smaller market share in China — is seen as a potential advantage by Moody's. The credit rating agency says FCA's smaller operation in China makes it less vulnerable to negative impacts of potential trade tariffs between the U.S. and China.

The escalating trade war between the U.S. and China has sent the stock market into a tailspin in recent days, but the Nasdaq rebounded Wednesday up 1.13%.

Twitter: @NoraNaughton