New York, September 09, 2019 -- Moody's Investors Service ("Moody's") downgraded
the senior unsecured debt rating of Ford Motor Company ("Ford")
to Ba1 from Baa3, and concurrently assigned the company a Ba1 Corporate
Family Rating and an SGL-1 Speculative Grade Liquidity rating.
The outlook is stable.
Downgrades:
..Issuer: Ford Holdings, Inc.
....Backed Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba1 (LGD4) from Baa3
..Issuer: Ford Motor Company
....Senior Unsecured Bank Credit Facility,
Downgraded to Ba1 (LGD4) from Baa3
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to Ba1 (LGD4) from Baa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba1 (LGD4) from Baa3
Assignments:
..Issuer: Ford Motor Company
.... Corporate Family Rating, Assigned
Ba1
.... Probability of Default Rating,
Assigned Ba1-PD
.... Speculative Grade Liquidity Rating,
Assigned SGL-1
Outlook Actions:
..Issuer: Ford Holdings, Inc.
....Outlook, Changed To Stable From
Negative
..Issuer: Ford Motor Company
....Outlook, Changed To Stable From
Negative
RATINGS RATIONALE
The Ba1 ratings reflect the considerable operating and market challenges
facing Ford, and the weak earnings and cash generation likely as
the company pursues a lengthy and costly restructuring plan. The
restructuring is expected to extend for several years with $11
billion in charges, and a cash cost of approximately $7 billion.
Ford is undertaking this restructuring from a weak position as measures
of cash flow and profit margins are below our expectations, and
below the performance of investment-grade rated auto peers.
Moreover, these measures are likely to remain weak through the 2020/2021
period including a lengthy period of negative cash flow from the restructuring
programs. "The company does have a sound balance sheet and
liquidity position from which to operate." said Bruce Clark,
Senior Vice President with Moody's.
Moreover, the erosion in Ford's performance has occurred during
a period in which global automotive conditions have been fairly healthy.
Ford now faces the challenge of addressing these operational problems
as demand in major markets is softening, and as the auto industry
is contending with an unprecedented pace of change relating to vehicle
electrification, autonomous driving, ride sharing, and
increasingly burdensome emission regulations.
The weak performance was driven by two principal factors, which
Ford is addressing, but implementation of the initiatives will take
some time. First, varying degrees of operating inefficiencies
developed in almost all of Ford's key regional markets including
North America, China, Europe and South America. Second,
earnings in China slid from an annual profit exceeding $1 billion
in 2016 to a major loss as a result of an aged product lineup, poor
dealer relations, and inattention to local market conditions.
A critical element of Ford's plan for addressing operational inefficiencies
and improving returns is the Global Redesign initiative. A major
component will be the restructuring of South American and European operations.
Ford has considerable expertise and a successful track record of undertaking
such restructurings. Nevertheless, the scope of this restructuring
plan is unprecedently large and challenging. It will extend at
least into 2023.
In addition to the restructuring initiatives, the Global Redesign
plan will also include efforts to revitalize the China operations where
Ford has already made notable progress in lowering costs. However,
efforts to regain lost share, rebuild market presence, and
restore meaningful profitability will be much more difficult to achieve
because the Chinese auto market is becoming increasingly competitive,
and near-term growth rates are likely to be much less robust than
in the past.
In North America, which remains one of the healthiest auto markets
globally, Ford's EBIT margins have fallen from over 10%
in 2016 to just under 8% in 2019, largely because of the
product age of large portions of its domestic portfolio. However,
Ford has begun an aggressive new product launch cycle. We expect
that this product renewal program, which will include the highly
profitable F-Series of full-size trucks, will help
Ford, over the next three years, strengthen North American
margins to a level that should approach 10%.
Ford has been active in addressing environmental risks, which will
remain a top agenda item in its forward planning. Nevertheless,
we believe that the company's current product portfolio leaves it
vulnerable to potentially large emission penalties in 2020 and 2021.
Reflecting these vulnerabilities, the new product launch will include
a number of battery electric and full hybrid vehicles as important contributors
in Ford's ability to comply with increasingly challenging emission
regulations in the US and Europe. However, customer acceptance
of these vehicles and Ford's ability to earn an economic return
on them remains uncertain.
Additionally, the alliance with Volkswagen AG will provide important
long-term benefits to Ford's position in electric vehicles,
autonomous vehicles and commercial vehicles. Nonetheless,
Moody's anticipates only minimal impact on Ford's earnings
and cash generation before 2022.
The stable rating outlook reflects Moody's expectation that the
initiatives being undertaken, particularly the Global Redesign effort
and the new product rollout, will contribute to gradual improvement
in the company's earnings, margins and cash generation,
albeit over a number of years. Ford's $23.2
billion of cash, which exceeds its debt, and its conservative
balance sheet afford the company the ability to fund its product development
and restructuring intiatives. Moody's notes that this level
of financial flexibility is common across the auto industry because of
the need to contend with severe downturns and sustain product investment.
The stable outlook also anticipates that Ford will maintain a sound liquidity
position as it funds the restructuring actions.
Ford's ratings could be downgraded if the major initiatives (Global
Redesign, new product rollout, and revitalization efforts
in China) do not contribute to a steady improvement in key performance
metrics. Metrics that would point toward downward pressure include:
company-reported North American EBIT margin below 7%;
the China operations unable to maintain a trajectory toward breakeven
performance by 2021; automotive cash position falling below $20
billion; and free cash flow burn that exceeds $1 billion after
restructuring expenditures but excluding dividends from Ford Credit.
An upgrade of Ford during the near term is unlikely. However,
factors that could contribute to an upgrade include a robust progress
in the initiatives that it is undertaking as evidenced by: a North
American automotive EBIT margin sustained above 9%; full compliance
with US and European emission requirements based on the profitability
and market acceptance of its electrified vehicles; and total automotive
EBIT margin exceeding 7% (excluding special items). Another
element important for a ratings upgrade is an operating structure that
is robust enough to sustain the total automotive margin above 4%
during an approximately 20% cyclical downturn in unit shipments,
while controlling the cash burn to preserve automotive cash above $10
billion.
The methodologies used in these ratings were Automobile Manufacturer Industry
published in June 2017, and Captive Finance Subsidiaries of Nonfinancial
Corporations published in August 2019. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
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
