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Rating Action:

MOODY'S LOWERS FORD'S RATING TO A3; CONFIRMS A2 LONG-TERM AND P-1 SHORT-TERM RATING OF FORD CREDIT; AND, LOWERS HERTZ'S RATING TO Baa1. OUTLOOK FOR ALL COMPANIES IS NEGATIVE.

18 Oct 2001
MOODY'S LOWERS FORD'S RATING TO A3; CONFIRMS A2 LONG-TERM AND P-1 SHORT-TERM RATING OF FORD CREDIT; AND, LOWERS HERTZ'S RATING TO Baa1. OUTLOOK FOR ALL COMPANIES IS NEGATIVE.

Approximately $41.5 Billion of Debt Securities Affected.

New York, October 18, 2001 -- Moody's Investors Service lowered the senior debt rating of Ford Motor Company to A3 from A2, and confirmed the A2 long-term and Prime-1 short-term ratings of Ford Motor Credit. The rating outlook for both companies is negative. Moody's also lowered the long- and short-term ratings of Hertz Corporation to Baa1 from A3 and to Prime-2 from Prime-1 respectively. The rating outlook for Hertz is Negative. These rating actions conclude a review for possible downgrade that was initiated on August 17, 2001.

The downgrade of Ford's rating reflects the erosion in the company's longer-term competitive position in North America. This erosion stems from the increasingly competitive environment in the high-margin U.S. SUV, light truck and minivan markets, which accounts for the majority of Ford's earnings and cash flow. Moreover, the returns generated by Ford's domestic car operations and its international business have been chronically poor. In contrast, many of its non-U.S. competitors have a more diversified earnings stream: they earn acceptable returns on cars sold in the U.S. where they have a younger and more affluent customer base within the U.S. car market relative to Ford; they are entering the lucrative U.S. truck, SUV and minivan markets; and, they also enjoy solid profitability in their domestic markets.

This weakening in Ford's competitive position is occurring as the U.S. automobile market is entering a cyclical downturn that could be exacerbated by the aftermath of the September 11th terrorist attacks. This will create a very challenging near-term environment for the company, and will result in weak cash generation and debt protection measures through 2002. In response, Ford is undertaking various restructuring initiatives intended to reduce employment levels and lower capacity. It is also contemplating further initiatives that could reshape its operating structure and strengthen the rebound in financial performance that would accompany the eventual recovery in the U.S. automotive market. Subsequent to past cyclical downturns, various restructuring and product enhancement programs undertaken by Ford, in combination with rising demand, have enabled it to enjoy a robust recovery in earning, cash generation and debt protection measures. Ford's ability to successfully lay the groundwork for an operational and financial recovery when the U.S. market picks up will be critical to sustaining the current rating level and to avoiding additional pressure on the A3 rating.

Ford's negative outlook reflects the uncertainty surrounding the potential depth and duration of the current downturn, the scope of the restructuring efforts that might ultimately be implemented by the company, and the degree to which its financial performance will improve when demand recovers. We expect that over the coming quarters, the likely severity of the U.S. downturn and the full scope of Ford's restructuring efforts will become more clear. During this period, Moody's will have an opportunity to more precisely assess the timing and magnitude of the cash costs associated with the full range of any restructuring efforts to be implemented by Ford, the impact that these efforts will have on the company's fixed cost position and break-even levels, and the degree to which the company can lay an effective foundation for strengthening its financial performance beyond 2002. Important considerations in assessing this foundation will include: 1) Ford's ability to reduce domestic capacity, lower hourly wage and benefit expenditures, consolidate platforms, and achieve additional efficiencies in both its supplier and dealer networks; and, 2) the market share, pricing and industry-shipment assumptions that are the back drop for Ford's future operating model.

Ford's liquidity position should afford it with adequate financial flexibility as its operating model and the market environment take shape over the near term. At the end of the third quarter Ford's manufacturing operations had a sizable liquidity position based on cash, marketable securities and VEBA balances of approximately $15 billion, and the exceptionally long 28-year average life of its $12.1 billion in debt. Moreover, Ford's decisions to cut its dividend and to pursue other near-term cash conservation efforts will be constructive. Despite a potential underfunded pension liability based on recent market performance, Moody's expects that Ford's intermediate-term funding requirements for this liability should be relatively modest. We also anticipate expenditures associated with tire-related litigation will not represent a material drain on cash.

The confirmation of Ford Motor Credit Company's ratings are based on the company's sound operating and financial position, the high quality and liquidity of its assets, its importance to Ford, and the relatively stronger position of the finance company's creditors vis-a-vis the parent's. The finance subsidiary's ratings are closely linked with Ford's given the interrelationship and business ties between the two companies; yet Ford Credit remains positioned to operate as a prudent finance company, with more stable business metrics through economic cycles. Moody's believes that these finance company characteristics present an incrementally better credit proposition for debt investors than do the parent's, and the one-notch rating differential reflects this conclusion.

Moody's believes that Ford Credit is a well-managed, technologically sophisticated finance company. The company has operated with sound levels of alternative liquidity to support both its debt-paying ability and its ongoing business operations through market stresses, and is well-positioned today. Short-term debt levels have declined materially through 2001, with the finance company making greater use of the long-term and short-term structured finance markets. One consequence is a vastly increased level of bank line coverage of outstanding commercial paper. Moody's also noted that weakness in the auto market, and the economy generally, will continue to be adverse credit factors: financng customer performance is weakening, Ford's new car volumes and pricing are under pressure, and the residual valuations on off-lease vehicles are under stress. Yet Moody's believes that Ford Credit's underwriting, pricing and credit reserve policies, as well as its asset-linked capital standards, provide appropriate protection against market cyclicality.

Ford Credit's overall position is strongly influenced by its multifaceted relationship with Ford. Ford's new vehicle sales volume directly influences Ford Credit's origination volumes, and vehicle quality and pricing influence lease residual valuations. The parent's marketing policies influence the loan-versus-lease decision and financing customer quality, with deep incentives attracting higher-quality borrowers. Also, Ford is effectively an obligor to Ford Credit, because Ford reimburses the credit company for any incentivized retail loans back to market rate, over the term of the loans.

Nonetheless, Moody's believes that the position of Ford Credit's debtholders is and will remain incrementally stronger than that of Ford's creditors. The rating agency concluded that Ford Credit's debt and equity constituents are both motivated to ensure that the company maintains sufficiently prudent financial metrics, operating standards, and asset quality measures to continue its operations through any range of stresses. Ford Credit provides exceptional services to Ford by ensuring that financing is available to its dealers and targeted retail customers, even through economic stresses, and by serving as a customer relations link. In this regard, the highly liquid nature of prime auto finance loans, including a deep securitization market, provides flexibility for the finance company to provide these services, even through a difficult environment, if it continues to operate prudently. For these same reasons, Moody's believes that the current protocols of intercompany independence will be broadly maintained. Moody's long-term debt ratings are opinions about the likelihood of default as well as recovery or loss upon default. In light of its expectations as to Ford Credit's ongoing operations, the rating agency indicated that the superior recovery prospects for the finance company creditors, although unlikely to be tested, warrants a single notch rating differential from the manufacturing parent.

The downgrade of the Hertz rating and its negative outlook reflect the erosion in the company's operations due to the severely weakened environment for business and leisure travel in the U.S. This weakness is the result of the general slow down in the U.S. economy, and the additional burdens placed on the travel industry following the terrorist attacks. The rating action also reflects the significant operational and financial relationship between Hertz and Ford. Hertz is the single largest buyer of Ford vehicles; Ford is Hertz's largest supplier of fleet vehicles; it provides most of these vehicles on a repurchase basis; and, Ford extends a $500 mil. liquidity facility to Hertz. In addition, Ford has recently increased its ownership of Hertz to 100% from 82%. This relationship has provided a lift to Hertz's long-term and short-term ratings. Consequently, the erosion in Ford's credit quality diminishes the degree of ratings lift afforded to Hertz.

In taking this rating action on Ford and Ford Motor Credit Company Moody's noted that it is continuing its review of the A2 long-term and Prime-1 short-term ratings of General Motors Corporation (GM) and General Motors Acceptance Corporation (GMAC) for possible downgrade. GM faces many of the same competitive and cycilcal-downturn challenges facing Ford. Moody's anticipates that it will shortly conclude the review of GM's operational and competitive challenges, and resolve issues relating to the possibility of GM and GMAC having different long- and short-term ratings.

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.

Hertz Corporation, headquartered in Park Ridge, New Jersey, is the world's largest rent-a-car company and is a leader in the rental and lease of construction and material handling equipment.

New York
Jay A. Siegel
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233

New York
J. Bruce Clark
Senior Vice President
Corporate Finance
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233

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.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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