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Fitch's Ford Rating: Dumb and Late

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Fitch's Ford Rating: Dumb And Late

Richard Lehmann, Forbes/Lehmann Income Securities Investor 03.15.06, 1:00 PM ET

MIAMI, Fla. -

Fitch Ratings cut the credit rating of Ford Motor further, from BB+ to BB, citing as rationale statements such as: "The potential for labor actions, potential financial support and costs related to re-sourcing and double-sourcing all point toward potentially higher direct costs from Ford's supplier base." Also cited: "Clearly the deep stresses" among auto-parts suppliers "will make the cost-cutting more difficult." The luminary at Fitch responsible for these nuggets of wisdom goes on to opine that Ford's cash reserves would be depleted quickly should suppliers begin requiring Ford to pay cash for parts and services, since suppliers could soon grow wary about Ford's ability to stay current on payments. And not to leave anyone out, General Motors was thrown in the mix as having the same problems.

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What is wrong with this picture? Why do my 23 years of tracking and reporting on corporate bankruptcies make me skeptical of these broad indictments by a credit rating agency, an agency that is supposed to give objective opinions based on known or at least knowable facts? Here are some of those knowable facts:

--Ford (nyse: F - news - people )has $25 billion dollars in the bank versus debts of only $18 billion;

--It earned $2 billion worldwide last year despite huge losses in the U.S. market;

--Ford's balance sheet still sports $13.9 billion of shareholder equity;

--It owns one of the largest, most profitable finance companies in the world.

At this rate, Ford could continue losing money for a decade and survive, although long before then the credit rating agencies will have run out of rating letters and symbols.

More at Forbes

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