Ford News: Moody's Downgrades Ford's Credit Rating

[William Maley]

Yesterday, Moody's Investment Services dropped some bad news on Ford as they have downgraded their credit rating to Baa3 - one rung above speculative grade. 

Analysis by the investment service said the downgrade "reflects the erosion in the company's global business position and the challenges it will face implementing its Fitness Redesign program."

The erosion that Moody's is referring to includes,

• Profit margins in North America beginning to soften due to higher costs
• Continuing losses in Europe and concerns of it getting worse due to Brexit
• Strains in the Chinese and South American markets

Moody's said that downgrading Ford's credit rating further isn't out of the question.

"The ratings could be downgraded absent clear progress in pursuing the fitness initiatives by early to mid-2019, with evidence the company is on a strong trajectory for recovery."

Downgrading Ford's credit rating will make it harder for the automaker to get money from investors.

“There are many investors who currently purchase Ford’s debt that would be unable to do so. That means many investors would have to sell their bonds. It means that there are investors that Ford can currently go to to get money and might not be able to do that in the future,” explained Bruce Clark, senior vice president at Moody’s to the Detroit Free Press.

In a statment, Ford spokesman Bradley Carroll said the company has been delivering solid financial results "year after year" and believes the market will come around to see their progress.

 “Since coming through the Great Recession, Ford Motor Company has delivered year after year of solid financial results and operating cash flows. The company has a strong balance sheet, which provides financial flexibility. We know we can capitalize on our strengths, bolster underperforming products and regions and disposition where we cannot make an appropriate return. We’re confident that as we do, the market will recognize our progress,” said Carroll.

Ford's Fitness Redesign program will see the company assessing their portfolio "with the goal of restructuring, contracting or exiting businesses that will not be able to generate adequate returns. Restructuring initiatives could entail $11 billion in charges with $7 billion in related cash expenditures over the next three to five years," Moody's wrote.

We've already seen some of this as Ford announced they would be dropping most of their carline up to focus on trucks and utility vehicles back in April.

"The company's decision to wind down its car business in North America, which we viewed as credit positive, reflects its willingness to make aggressively disciplined capital allocation decisions," said Moody's.

But there is one major concern Moody's says in their report Ford still needs to address. Ford hasn't been fully clear with proving more details about the program.

"At the same time, I think Ford needs to be even more transparent. Where’s their five-year plan? Fiat Chrysler has done an amazing job communicating their plan. General Motors has done a good job communicating their strategy. I can’t say I have that same clear vision from Ford,” said Rebecca Lindland, executive analyst at Kelley Blue Book.

"The alarm bells should have been going off awhile in Dearborn. Had Ford really had a bullish outlook with China, they might have kept Aston Martin, Volvo or Jaguar Land Rover" — brands it sold, said Dave Sullivan, manager of product analysis for AutoPacific Inc.

"Ford is trying to add more crossovers, but they are late to market by years. FCA and others got in while the market was hot. I think the opinion from many on Wall Street is that Ford is a one-trick pony and that pony's name is F-Series."

Source: Detroit Free Press

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[balthazar]

What's Tesla's credit rating??

[Robert Hall]

3 minutes ago, balthazar said:

What's Tesla's credit rating??

B3 on some things, Caa1 on senior notes...whatever that shit means (I'm not an accountant).

https://www.cnbc.com/2018/03/27/moodys-downgrades-tesla-credit-rating-on-model-3-production-delays.html

Edited August 30, 2018 by Cubical-aka-Moltar

[David]

13 minutes ago, balthazar said:

What's Tesla's credit rating??

If you have an account you can view it here: https://www.moodys.com/credit-ratings/Tesla-Inc-credit-rating-823642219

Since I do not it took a bit of searching and in the last year Tesla from Aug 2017 to Aug 2018 has gone from a B2 to B3 back in March 2018 to a further downgrade of Caa1. 

Tesla Moody Rating as of Aug 2018 is Caa1(Unsecured Notes) or Speculative Grade Liquidity. Meaning expect the company to have to be liquidated.

https://stocknews.com/news/tsla-moodys-investor-service-downgrades-teslas-corporate-family-rating-to-b3/

https://www.streetinsider.com/Credit+Ratings/UPDATE%3A+Moodys+downgrades+Teslas+(TSLA)+corporate+family+rating+to+B3%2C+senior+notes+to+Caa1%3B+Outlook+is+negative/13990276.html

Tesla is a very Risky bet for investing especially if you are a conservative investor.

[smk4565]

I think the swing from gas to electric cars is going to happen fast over a 5-10 year period in the 2020s.  And that is really just one product life cycle in automotive terms.  The companies that are ready for it will prosper and the ones that aren’t ready will probably go bankrupt.  

I think Ford doesn’t make a ton of profit outside of the F150 and that is why they cancelled sedans, no money to develop them, and will they have money to convert to EV if they can’t get money from investors?

[David]

Plenty of interesting reading on Tesla here by the financial sector.

https://seekingalpha.com/symbol/TSLA 

[David]

Back on track, Ford secured huge loans at putting up the whole ranch as collateral and their only big keys are F-Series trucks and the Mustang.

Ford Failure is that they did not move to a global platform when they had more money, they did not pay down the huge sums owed to the union pension plan. They still have massive debt.

Questions:

1. Could Ford end up having to sell to a Chinese owner, investment fund or some other way to stay alive?
2. Would the current government bailout Ford in Bankruptcy if it happened?
3. Can Ford survive the coming bear market and the flip if gas prices get to high back to cars of Medium to subcompact again?

I have to say that while I was a ford stockholder in the 90's, I dumped it and never considered going back. I was lucky enough to have moved to a cash position in 2006 before the crash of 2007. I honestly missed taking advantage of market growth over the last 4 years as I put 2 kids and a wife through college. 

Right now I can care less about a so called 4.2% growth for the quarter, I think it is a balloon about to pop and my guidance to everyone is pay off debt, save cash and prepare for a storm that will hit in 2019 with 2020 being a tough year before things get better and Ford might be a drastically different company come 2022.

[ccap41]

18 minutes ago, smk4565 said:

I think the swing from gas to electric cars is going to happen fast over a 5-10 year period in the 2020s.  And that is really just one product life cycle in automotive terms.  The companies that are ready for it will prosper and the ones that aren’t ready will probably go bankrupt.  

I think Ford doesn’t make a ton of profit outside of the F150 and that is why they cancelled sedans, no money to develop them, and will they have money to convert to EV if they can’t get money from investors?

Well they have prototypes of their "Mach 1" EV SUV rolling around.

https://www.autoblog.com/2018/08/28/2020-ford-mach-1-electric-performance-crossover-spy-photos/

[David]

48 minutes ago, ccap41 said:

Well they have prototypes of their "Mach 1" EV SUV rolling around.

https://www.autoblog.com/2018/08/28/2020-ford-mach-1-electric-performance-crossover-spy-photos/

Yes and I am excited by this, but I still see old Ford with 5 platforms and a slow change. Unlike FCA and GM, Ford has truly not bothered to produce a 5yr plan. Guidance of the future is much needed.

Right now Ford is a D- for mgmt. guidance. C- for product. IMHO

[ccap41]

5 minutes ago, dfelt said:

Right now Ford is a D- for mgmt. guidance. C- for product. IMHO

Just our of curiosity, what do you rank Honda, Toyota, Nissan, GM, FCA, Diamler, and BMW AG? 

[David]

33 minutes ago, ccap41 said:

Just our of curiosity, what do you rank Honda, Toyota, Nissan, GM, FCA, Daimler, and BMW AG? 

Since you asked, more than happy to tell you how I rank them for guidance and Product.

Honda C- / C+

Toyota C / B-

Nissan D+ / C-

GM B / B+

FCA B / C+

Daimler C / A-

BMW AG C / B-

Volkswagen D+ / B-

KIA / Hyundai D+ / B

Rest of the ubber luxury lines D- / C+

India auto brands F / D-

China only brands F / D-

 

[ccap41]

I have absolutely no clue how you could say the Ford product portfolio is as junk as Nissan's and that FCA's is stronger. 

Edited August 30, 2018 by ccap41

[David]

1 hour ago, ccap41 said:

I have absolutely no clue how you could say the Ford product portfolio is as junk as Nissan's and that FCA's is stronger. 

Other than their truck line, the rest of Ford / Lincoln is on par with Nissan IMO. The truck line while sells as the #1 truck line, I find cheap and plasticky even now. I take FCA jeep product line with Ram and the fun Dodge /chrysler products over Ford. FCA has a better spread.

[balthazar]

I pulled into the local Ford dealer Sunday (closed) and they had a quartet of F-150s right in front of where I parked. 2018 F-150 XLT FX4 cew cab standard bed- it looked fantastic. Chrome grille/bumper definitely looks better than the body-color lower trim. Nothing about it looked cheap, whereas a LOT of sedans that command similar pricing absolutely do to my eye.

[ccap41]

You are fcking crazy. Now I understand why we don't agree all that much. I know some biased people but nobody who thinks Nissan has a better overall portfolio than Ford. Nissan literally doesn't make a single vehicle that is a better consumer option than the comparable Ford. 

Okay, thinking about the lineups the Maxima is waaaay better than the disgraceful Taurus. 

[David]

3 minutes ago, ccap41 said:

You are fcking crazy. Now I understand why we don't agree all that much. I know some biased people but nobody who thinks Nissan has a better overall portfolio than Ford. Nissan literally doesn't make a single vehicle that is a better consumer option than the comparable Ford. 

Okay, thinking about the lineups the Maxima is waaaay better than the disgraceful Taurus. 

Excluding the Ford Pickup, I would from an engineering standpoint take a Nissan over the ford auto's right now. Ford cannot outlast the Nissans. regardless of style or interior design. The nissans last.

[ccap41]

11 minutes ago, dfelt said:

Excluding the Ford Pickup, I would from an engineering standpoint take a Nissan over the ford auto's right now. Ford cannot outlast the Nissans. regardless of style or interior design. The nissans last.

Those CVT's that are junk and their old-ass n/a 4 bangers are more technologically impressive to you? Their CVTs(which are in everything) are absolutely not reliable. Give'm a google. They're are trash as the DCT in the Focus and Fiesta but they put theirs in everything. 

[riviera74]

Too bad Ford did not dump some of their more troubled properties and assets when they had the chance.  Ford may end up being in as much trouble as FCA within the next five years.

[balthazar]

FoMoCo had a net income of $7.6 billion last year. FCA made $4.3B. Neither are on shaky ground.

[David]

32 minutes ago, balthazar said:

FoMoCo had a net income of $7.6 billion last year. FCA made $4.3B. Neither are on shaky ground.

I disagree with you, FCA was able to dump pension obligations, long term debt and so much more in bankruptcy. Ford has crazy debt obligations that $7.6 billion will not even reduce in any noticeable fashion.

Ford Debt $15.9 Billion

Ford Pension debt $19 billion

https://www.fool.com/investing/2017/01/26/ford-posts-a-fourth-quarter-loss-as-pension-charge.aspx

https://www.fool.com/investing/2016/11/22/2-critical-takeaways-from-ford-motor-cos-lets-chat.aspx

FCAM Debt $75.3 billion

https://finance.yahoo.com/quote/FCAU/balance-sheet?p=FCAU

FCAM pension obligation according to wikipedia as I cannot find any other says $5.5 billion in pension debt has been accumulated since Fiat took over Chrysler.

[riviera74]

You might want to compare likes with likes between Ford and FCA.  Ford has much higher liabilities than FCA.

Ford balance sheet

Fiat Chrysler balance sheet

[balthazar]

Companies aren't paying debts out of net profits- that's why it's 'net'. The have whatever line item budgeted in to pay towards various debts, those are taken out before net income numbers.

And companies commonly carry internal debt for years, they seldom ever pay it down in 1 year & would never use all their net income to do it.

[smk4565]

On 8/30/2018 at 12:46 PM, dfelt said:

Back on track, Ford secured huge loans at putting up the whole ranch as collateral and their only big keys are F-Series trucks and the Mustang.

Ford Failure is that they did not move to a global platform when they had more money, they did not pay down the huge sums owed to the union pension plan. They still have massive debt.

Questions:

1. Could Ford end up having to sell to a Chinese owner, investment fund or some other way to stay alive?
2. Would the current government bailout Ford in Bankruptcy if it happened?
3. Can Ford survive the coming bear market and the flip if gas prices get to high back to cars of Medium to subcompact again?

I have to say that while I was a ford stockholder in the 90's, I dumped it and never considered going back. I was lucky enough to have moved to a cash position in 2006 before the crash of 2007. I honestly missed taking advantage of market growth over the last 4 years as I put 2 kids and a wife through college. 

Right now I can care less about a so called 4.2% growth for the quarter, I think it is a balloon about to pop and my guidance to everyone is pay off debt, save cash and prepare for a storm that will hit in 2019 with 2020 being a tough year before things get better and Ford might be a drastically different company come 2022.

Agreed and to answer your questions:

1.  Very possible, Chinese firms have money and may want Ford's intellectual property, but they probably don't want Ford's European operation, but they could shutter that or move manufacturing to China and keep the dealers in Europe to get profit margin.

2.  I doubt it, and I doubt an Elizabeth Warren style administration would bail out a big corporation either.  So Ford is on their own in that regard.

3.  They can survive one or the other, a bear market of sales and high gas prices at the same time will hurt them badly, because they live on commercial vehicles (who's sales drop in bear markets) and gas guzzler SUVs (who's sales drop with high gas prices).   

And someone will say Fords SUVs aren't gas guzzlers but the 4-cylinder Explorer gets worse gas mileage than the V6 Highlander and Pilot and the Highlander Hybrid beats the Explorer 29 to 21 mpg combined.

[smk4565]

Daimler's credit rating is A2 which is upper medium grade, Honda is one level better at A1 and Toyota is Aa3 which is one step above Honda.

FCA is a Ba2 which is junk bond status already.  Ford and FCA are both a bit of a house of cards, even though profits are being turned now, they aren't really putting much into new product or innovation and they both have big debt loads and big pension loads.

[balthazar]

22 minutes ago, smk4565 said:

• someone will say Fords SUVs aren't gas guzzlers but the 4-cylinder Explorer gets worse gas mileage than the V6 Highlander and Pilot and the Highlander Hybrid beats the Explorer 29 to 21 mpg combined.

'18 Explorer : "up to 19/27"
'18 Highlander : "up to 21/27"

Hybrid highlando has such a high premium over the gas model, it takes 14 years to break even, which is why it doesn't sell. The top trim platinum limited starts at nearly $49K, and for that kind of money you can get a far more upscale SUV, which -again- is why that model doesn't sell.