Moody's hands Ford lowest investment rating

Ian Thibodeau
The Detroit News
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Moody's Investors Service downgraded Ford Motor Co. to its lowest investment grade rating Wednesday, calling the company's outlook "negative."

The ratings agency said the downgrade comes amid "the erosion in the company's global business position and the challenges it will face implementing its Fitness Redesign program." The new Baa3 rating, considered a risky investment, is one grade above Moody's rating for junk bonds. 

Ford CEO Jim Hackett and his executive team expect to lead a $25 billion global restructuring plan over the next few years. Moody's said in a statement that the restructuring, coupled with "softening" North American margins, languishing earnings in China, and losses in South America and Europe have "contributed to the erosion in Ford's key credit metrics between 2016 and the twelve months ending June 2018."

The ratings agency said the restructuring should take aggressive actions — like the company's decision to ax all its sedan models — and happen while Ford posts strong North American profits and has strong liquidity. But it will take several years for benefits of a restructuring to materialize, Moody's said.

The company will also be spending money to restructure while it invests in autonomy, electrification and mobility ventures, next-generation technology that often referred to as Auto 2.0.

"Ford's negative outlook recognizes the significant challenges of effectively executing the full scope of the Fitness program, and the extended time period over which material benefits might be achieved," Moody's wrote in a note. "In addition, the considerable financial and managerial resources devoted to the Fitness program will reduce Ford's ability to contend with any unexpected cyclical downturn."

Ford spokesman Brad Carroll said in a statement that the company has delivered strong financial results for nearly a decade, and has a strong balance sheet that provides financial flexibility.

"We know we can capitalize on our strengths, bolster under-performing products and regions and disposition where we cannot make an appropriate return," Carroll said. "We’re confident that as we do, the market will recognize our progress."

Moody's said Ford's rating could be further downgraded if the company does not show progress in "pursuing the Fitness initiatives" by early to mid-2019, or if the company fails to address losses in its major regions around the world.

The chances for an upgrade of Ford's ratings through 2020 are "very modest," Moody's wrote. That could be possible if the company successfully executes Hackett's vision, which would require hitting a 10 percent earnings margin in North America, and becoming competitive again in China.

Twitter: @Ian_Thibodeau