Ford Credit Rating Slashed on US and China Problems

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Moody’s has cut its rating of Ford Motor Co. (NYSE: F). That decision was largely based on Ford’s results in its home markets and catastrophic drops in the results of business in China, the world’s largest car market.

The credit rating agency’s analysts wrote:

Moody’s Investors Service (“Moody’s”) downgraded the senior unsecured rating of Ford Motor Company (Ford), and its supported subsidiaries and affiliates to Baa3 from Baa2. The outlook is negative.

Moody’s also is skeptical about new CEO Jim Hackett’s Fitness Redesign program. The program involves, among other things, a huge expansion and investment in its electric and autonomous vehicle plans and making the company more “efficient,” which includes cuts of billions of dollars in expense — as much as $11 billion.

In short, the plan could jeopardize Ford:

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. 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.

The downgrade, which may make it more difficult for Ford to raise money on favorable terms, is another criticism of Hackett, who has done nothing over his time at the top to engender investor confidence. Ford’s sales in China have been terrible, in a market that many think is the most critical to the health of global manufacturers. Peter Fleet, president of Ford Asia Pacific and chair and CEO of Ford China, announced recently:

Overall Ford Motor Company China sales totaled 62,057 in June, a 38 percent decline year over year. In the first half of 2018, Ford Motor Company China sold 400,443 vehicles in China, a 25 percent decline year over year. Monthly sales of Lincoln reached nearly 4,400 vehicles in June, a 12 percent increase compared to June 2017. The year-to-date sales for Lincoln totaled more than 24,000 vehicles, a four percent increase year over year.

The market is so competitive that Ford may never get back its market share there.

In the United States, Ford has too many sedans and small cars for a market suited for sport utility vehicles, crossovers and pickups. To its credit, the top-selling vehicle in the United States is its F-150 pickup. However, Ford will discontinue the sale of most of its cars in the United States to exit a business it believes cannot get any better.

Ford’s efforts in the autonomous car and electric vehicle sector compete with every major car company in the world and an army of software and tech companies. Ford has not shown any product of its tech development that demonstrates how it can best any of these competitors.

All Moody’s has done is confirm Ford’s grim future.