Negative Moody’s outlook threatens Ford’s credit

Nora Naughton
The Detroit News

Ford Motor Co.’s good standing in the credit community is in danger after Moody’s Investor Services downgraded its ratings outlook for the automaker.

The ratings agency said the “negative” outlook, downgraded from “stable,” comes amid a “more challenging operating environment” for Ford. CEO Jim Hackett is attempting to whip the Blue Oval back into shape with a “fitness redesign” that is supposed to cut costs and realign its product portfolio, though Moody’s sees the challenges associated with this undertaking as reason to downgrade its outlook.

“Ford’s ability to stabilize its outlook will be determined by the pace at which it can successfully implement the Fitness Redesign undertaking,” Moody’s said in a statement. “Notwithstanding the possible benefits of the program, we expect that Ford’s operating performance will remain under pressure into 2019.”

The negative outlook is a blow to Ford. It’s the only Detroit automaker to avoid bankruptcy during the recession, and only just regained its investment grade — and its Blue Oval trademark — from Moody’s in 2012.

Ford is bracing for a tough 2018, citing the rising cost of commodities, slipping U.S. auto sales and a need for heavy investment in mobility services as weights on profits this year.

These problems aren’t unique to Ford, as Moody’s points out in its report. The entire auto industry is struggling with the need to “allocate capital judiciously” across a growing range of investment opportunities.

“This capital reallocation process could result in sizable restructuring expenditures should Ford decide to exit major businesses, product categories, or markets,” Moody’s said. “If such restructurings occur, they could place additional pressure on Ford’s already weak near-term financial performance and on its liquidity position. This added stress would have to be balanced against the timing, magnitude and certainty of the anticipated restructuring benefits.”

Moody’s says the chance of an upgrade of Ford’s ratings through 2020 are very modest.

Hackett, who was hired to be an innovator for Ford, was brought on in part to woo investors with his big-picture design and tech ideas. It appears investors still haven’t warmed to the former Steelcase Inc. CEO’s “fitness redesign” initiative. The company’s shares have fallen more than 11 percent this year, and Wednesday Ford’s stock slipped nearly 1 percent, closing at $10.97.

Hackett is also tasked with fleshing out the Blue Oval’s product portfolio with more small SUVs and mid-size trucks, market segments Ford has been overlooking for years. The 2019 Ford Ranger, which debuted at the Detroit auto show earlier this month, won’t hit dealer lots until the first quarter of next year.

The outlook downgrade comes as the industry prepares to report 2018’s first month of U.S. auto sales, which are expected to slip about 1.4 percent compared to January 2017, according to Edmunds. Ford is hoping to finally ride the compact SUV wave, the fastest-growing segment in 2017, with the EcoSport arriving at dealer lots this month.