Moody's Investors Service has cut Ford's credit rating to junk due to the company's weak earnings and cash generation outlook. Ford is in the midst of restructuring, which is incurring heavy charges, and hoping to become leaner and better able to face rising automotive sector challenges and raise levels of profitability.
Moody's said it had downgraded Ford's credit ratings to 'reflect the considerable operating, competitive, and market challenges facing the company, and the resulting pressure on its earnings and cash generation measures'.
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Moody's noted that the restructuring at Ford is expected to extend for several years with USD11bn in charges, and a cash cost of approximately USD7bn. It also said that "'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."
Moody's cut the rating on Ford's bonds to Ba1, the highest level on the junk bond category. Moody's also said that the erosion in Ford's performance has occurred during a period when global auto industry conditions have been fairly healthy. Ford now faces addressing operational problems as demand in major markets softens and the auto industry faces an 'unprecedented pace of change' related to e-mobility, autonomous drive, ride-share and 'increasingly burdensome emission regulations'.
