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Rating Action:

MOODY'S CONFIRMS RATINGS OF FORD AND FMCC AND MAINTAINS STABLE OUTLOOK; LONG-TERM AT A2 AND SHORT-TERM AT PRIME-1

06 Apr 2001
MOODY'S CONFIRMS RATINGS OF FORD AND FMCC AND MAINTAINS STABLE OUTLOOK; LONG-TERM AT A2 AND SHORT-TERM AT PRIME-1

Approximately $165 Billion of Debt Securities Affected.

New York, April 06, 2001 -- Moody's Investors Service confirmed the A2 long-term and Prime-1 short-term ratings of Ford Motor Company and Ford Motor Credit Company (FMCC), and maintained its stable rating outlook. These rating actions reflect Ford's competitive brand management strategy in the U.S., the company's strong net liquidity position, and our expectation that the launch of critical new-models in the U.S. and Europe will be successful. We anticipate that these strengths will enable Ford to adequately address the most critical challenge that it faces - increasing competition from Japanese and European companies in the highly profitable U.S. market for light trucks and SUVs.

We believe that Ford has established a competitive brand management strategy in the U.S. market. This success is evidenced in a number of areas: 1) Ford has built the Explorer/Mountaineer into the best-selling SUV in the U.S.; 2) the Ford Focus is one of the best-selling cars in the world; 3) the company is effectively managing the Volvo and Jaguar brands; and, 4) the Premier Auto Group (PAG) has the potential to materially diversify Ford's earnings base, enhance overall margins, and improve growth prospects. In addition, Ford has not suffered excessive losses in market share in the U.S. during the past decade.

Ford's current level of financial flexibility should also afford it with ample cushion to cope with the anticipated slowdown in the U.S. automotive sector. During the 1990/91 downturn, U.S. light vehicle shipments fell by 16% from 14.9 million units to 12.5 million. Moody's currently anticipates that shipment levels could fall by about 10% during 2001. Going into this downturn, Ford's manufacturing operations had a year-end 2000 gross cash position of about $16.5 billion, and VEBA balances of $3.7 billion. This compares with $12.1 billion in debt, for an $8.1 billion net liquidity position. During 2001 this position will likely decline by several billion due to: 1) a $1.6 billion payment associated with the Volvo car acquisition, 2) $700 million in expenditures to acquire outstanding shares of Hertz; 3) $4.0 billion in planned share repurchases; and, 4) lower cash generation due to the slowdown in the U.S. market. Despite the likely reduction in Ford's reported net liquidity position, the company's flexibility and ability to fund its operations during the anticipated downturn should be strong. Its $12.1 billion in debt has a weighted average maturity of 28 years, and actual maturities during from each of the next four years average less that $150 million. Moody's also believes that Ford has achieved an appropriate breakeven level in the U.S., and that the company has adequate contingency plans for preserving cash in the event of a downturn.

In order to maintain the stable outlook it will be important for Ford to demonstrate its ability to preserve a competitive position in the U.S. market despite increasing international competition in the truck and SUV segments. A successful roll out of the new Explorer/Mountaineer SUVs will be critical in meeting this challenge. There are several other recently released or soon-to-be launched models that will also be important in gauging Ford's ongoing ability to preserve its competitive position and maintain the stable outlook. These include the soon-to-be released Jaguar X-type, and the recently launched Mondeo mid-size car and Transit van in the European market. During the next 6 to 12 months we will closely monitor the market's acceptance of these new products, the degree to which incentives are needed to support sales levels, and the level of warranty/recall expenses that are incurred.

The success of Ford's new model introductions outside of the U.S. will be instrumental in stabilizing its market share position and restoring profitability to its European and South American operations. The principal reason for the poor performance of Ford's international operations has been Ford's weak new-model strategy in these markets.

To the degree that Ford's domestic and international new models are not successful, or that more seasoned models in its portfolio lose share in the U.S., there could be an adjustment to the company's outlook.

Moody's believes that Ford's internal cash generation and insurance coverage considerably mitigate the impact that Firestone tire-related litigation will have on the company's credit quality. The more critical risk posed by the Firestone recall would be its potential impact be on the future sales of the new Explorer. We believe that Ford has been very proactive in attempting to reduce any negative impact, and that sales of the vehicle will largely be driven by their relative competitiveness in the market.

We believe that FMCC is financially sound and has a competitive operating position. This should enable it to continue supporting Ford's automotive operations. Key debt protection measures of FMCC are: debt (adjusted for ABS)-to-equity of approximately 14 times, credit losses as a percent of net receivables of 0.84%, and U.S. past due as a percent of net receivables of 0.48%. In addition, we believe that residual levels on the company's lease portfolio have been booked in a prudent manner. We also expect that the $34 billion in available committed borrowing facilities available to FMCC, in combination with its access to the ABS market, provide adequate levels of alternate liquidity for its commercial paper borrowings. Moody's notes that it expects the ratings of Ford and FMCC to remain closely linked.

Ford Motor Company, headquartered in Dearborn, Michigan, is the world's second largest automobile manufacturer. Ford Motor Credit Company, also headquartered in Dearborn, Michigan, is the world's largest auto finance company.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
J. Bruce Clark
Senior Vice President
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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