TEXT-S&P: Ford Q1 results do not affect ratings
April 27 - Standard & Poor's Ratings Services said today that Ford Motor Co.'s (BB+/Stable/--) first-quarter results have no impact on the rating or outlook. Results were dominated by North America, where margins were stronger than our full-year expectations at 11.5%, but most other regions were loss making. Given the outlook for some of these other markets, North America could be expected to generate the vast majority of Ford's profits and cash flow in 2012. Automotive operating cash flow in the quarter was $900 million, up sequentially from $700 million, but down from $2.2 billion year-over-year. For the rating, we assume Ford will generate annual global automotive operating cash flow of at least $2 billion-$3 billion each year in the next few years. Ford's automotive debt rose slightly; gross automotive cash balances were almost flat since year-end at a substantial $23 billion. Ford contributed $1.1 billion to the pension in the first quarter, and we assume Ford will contribute another $2.4 billion in 2012--we would view this as equivalent to debt reduction. The company also announced plans to offer lump-sum payouts to salaried retiree and former employees to settle their pension obligation. This event would not be expected to change the unfunded amount materially, but would reduce assets and liabilities and so could be a modest positive over time. We view the sales recovery in the U.S. as solid even with the weak economic recovery; prospects for 2012 are far brighter than in the European market, which we view as very weak overall for the volume automakers, but with wide variations by country. Our U.S. light-vehicle forecast for 2012 is 14.2 million units--the first time sales have been materially above our estimate of replacement levels since 2008. We assume 2012 will be the fifth consecutive year of lower auto sales in Europe. This year we expect year-over-year production growth, which is an important driver of cash flow, in the mid- to low-single-digits in North America and for declines in Europe--for example Ford's European production in the second quarter is scheduled to be down 14.9% year-over-year. For a higher rating, we have previously articulated specific financial metrics and several qualitative factors (see our full analysis on Ford, published March 14, 2012, on RatingsDirect). The potential negative impact of the economic, political and financial uncertainty in Europe on other regions is an additional consideration for a higher rating.
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