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Announcement:

Moody's: Ford's Q1 results had some very early progress in Ford's Fitness & Redesign program; Ratings unaffected, including the long term Baa3 and negative outlook

26 Apr 2019

New York, April 26, 2019 -- Moody's Investors Service (Moody's) said elements of Ford Motor Company's (Ford) results during its first quarter of 2019 show some initial progress while still at the very early stages of its Fitness & Redesign program.

Moody's notes that there were several operational and market developments that were constructive. Nonetheless, these developments do not reflect an inflection point or any meaningful abatement of the immediate or long term challenges facing Ford in its core business. Nor do they lessen the challenges Ford faces in addressing alternative propulsion, autonomous driving or ride sharing.

In order to address the severe underperformance of large parts of its global operations and to adequately position itself for the shifting automotive landscape, Ford will have to continue successfully executing the Fitness & Redesign program. Consequently, the long term ratings of Ford and its supported subsidiaries and affiliates are unaffected at Baa3 with a negative outlook at this time.

The most notable developments during the first quarter of 2019 are: 1) Ford's EBIT margin in North America was 8.7%, close to our expectations, although company EBIT margin is still quite low, 2) the critical F-150 franchise remains strong, 3) the European operations were modestly profitable, and 4) in the important China market, the initial launch of the new Chinese-market Focus nameplate is meeting expectations.

Yet to come are a range of meaningful challenges that will take time and will consume considerable financial and managerial resources. Ford will be restructuring its significant non-US operations for quite some time, as China, Europe and South America represent almost 45% of its global shipments yet are a very significant drag on its consolidated performance. This restructuring program is unprecedented within the automotive sector, given its breadth, scale and long term uncertainty.

Adding to the complexity, the programs are being implemented with a backdrop of accelerating changes within the industry. Significant investment requirements and major shifts in the competitive landscape are being driven by vehicle electrification, autonomous driving, ride sharing, increasingly stringent emissions requirements, and the entry of additional automotive and technology players in the automotive space. Ford will need to address all of these future difficult issues, while fixing its core automotive operations and contending with the extreme cyclicality of the auto sector.

China remains a key area of risk where Ford's EBIT fell to a $1.5 billion loss in 2018. In this critical market, Ford must rapidly renew its product lineup and rebuild relationships with dealers in order to regain lost market share and reestablish acceptable returns. As it pursues the revitalization, Ford will have to contend with an environment in which domestic Chinese producers are being more competitive, pricing pressure is growing, and non-Chinese manufacturers are attempting to expand their presence.

Ford's liquidity position enables it to contend with operational stress and allow it to make increasing investments in coming years. At March 31, 2019, the company had a pro-forma $38.7 billion total liquidity position consisting of $24.2 billion in cash and marketable securities and approximately $14.5 billion in committed credit facilities. This is pro forma for a $3.5 billion credit facility executed in April 2019 and after considering $3 billion in commitments that have been allocated to Ford Motor Credit. After accounting for near term maturing debt (approximately $2 billion) and the minimum levels of cash needed to run the business and fund intra-period working capital requirements (Moody's estimate of approximately $8 billion), Ford has $29 billion in incremental liquidity that would be available to contend with stress.

Ford's negative outlook recognizes the significant challenges of effectively executing the full scope of the Fitness & Redesign programs, and the extended time period over which material benefits might be achieved. In addition, the considerable financial and managerial resources devoted to these programs will narrow Ford's cushion for contending with any unexpected cyclical downturn.

Moody's continues to be looking for further clear progress in pursuing the Fitness initiatives by around mid-2019, with Ford demonstrating evidence the company is on a strong trajectory for recovery. Moody's will assess whether Ford is able to address operational inefficiencies in each major region, while at the same time showing progress under the Fitness program's objective to generate adequate returns across all of its automotive business. Measures of the progress would include: 1) In North America: maintaining an EBIT margin above 8%, maintaining market share of at least 14.5%, and lowering the breakeven level; 2) In China: successfully launching new products that help grow market share, improve dealer relationships and restore historic levels of profitability; and 3) For the consolidated automotive operations: making steady progress toward restoring positive free cash flow.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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