Fitch corrects release to reflect Ford Motor Credit Co, FCE
Bank Plc and Ford Motor Co New Zealand short-term issuer
default and commerical paper ratings were upgraded not
affirmed. Fitch also upgraded Ford Credit Canada and Ford
Credit Australia short-term issuer default ratings were
upgraded and not affirmed.
(The following statement was released by the rating
Jan 11 - Fitch Ratings has upgraded the Issuer Default
Rating (IDR) for Ford Motor Company
(Ford) and Ford Motor
Credit Company (Ford Credit) to 'B-' from 'CCC'; the Outlook
The upgrade is based on an improved macroeconomic
environment, Ford's current cost/pricing/margin trends, product
competitiveness, solid near-term product pipeline, liquidity
position and cashflow prospects.
Fitch expects that Ford will turn cashflow positive in 2010
as an improving economic outlook and stabilizing retail
financing availability allow the U.S. market to achieve an
annualized run-rate of more than 11.5 million units in the
second half of 2010.
An important factor in the upgrade is Ford Credit's
improving access to capital for retail and dealer financing.
Fitch had previously cited the factors listed below as
rationale for an upgrade.
These points have been largely met, and will remain the
drivers of future upgrades.
--Industry sales rebound to an annual 12 million sales
level more quickly than currently forecast;
--Ford's products continue to hold or gain share;
--Inventory management at Ford and the industry allows Ford
to hold or improve product prices;
--A clear path to positive free cash flow is projected;
--Liabilities continue to be managed or addressed;
--Independent access to capital by Ford Credit improves.
Although Fitch expects a relatively modest rebound in
industry sales in 2010 given macroeconomic conditions, a
reversal to the trough levels of 2009 is viewed as increasingly
Although industry unit sales in 2009 were abysmal, Ford
picked up an impressive 1.2% of market share in the U.S.,
demonstrating competitiveness across product segments. Even in
the event of a relatively flat rebound, Ford's cost-cutting
realizations, market share performance, and pricing indicate
that any cash drains will be limited and can be very
comfortably managed within Ford's liquidity position.
Ford has been consistently disciplined in its production
and inventory management, and this has allowed the company to
demonstrate solid price performance through the first nine
months of 2009. The step-changes to Ford's cost structure will
have largely played out in the first half of 2010 (although a
new buyout program was recently announced) meaning that margin
restoration will become increasingly dependent on price/volume
Elevated commodity costs remain a risk for inputs including
steel, copper, fuel, etc., which could be exacerbated by any
extended weakness in the U.S. dollar. A spike in fuel prices,
of course, also poses risks on the demand side. Although
pricing will remain a challenge for the overall industry,
Ford's product competitiveness, technology features and healthy
product pipeline over the next several years indicate that Ford
should continue to outperform the industry. On the smaller end
of its product lineup, where the consumer is migrating, Ford is
exhibiting strong competitiveness.
Margins on these products are also expected to benefit from
technology and content. Looking into 2011, it is assumed that
the U.S. market could eventually reach an annualized sales
level of 12.5 million units, at which point Ford's free cash
flow could reach $4 billion-$5 billion. Further upgrades could
occur in 2010 if the outlook for U.S. economic growth and
industry sales continues to improve.
Liquidity remains strong at approximately $24 billion
(pro-forma for certain capital markets transactions). Ford has
demonstrated steady access to capital, including $2.9 billion
in convertibles at Ford, repeated unsecured debt issues at Ford
Credit in the last six months, and two non-TALF dealer
floorplan issuances in the amount of $2 billion.
The improved access to credit by Ford Credit (although at a
cost) is a primary factor in the upgrade. Ford will be
receiving a total of $5.9 billion in loans from the Department
of Energy. With improved liquidity prospects, Ford should be in
a position in 2010 to begin the long process of repairing its
Ford's balance sheet will remain burdened by total debt of
approximately $35 billion, plus required pension contributions.
A primary driver of Ford's ability to manage its liquidity and
growth in liabilities has been its repeated willingness to
issue equity. Fitch expects Ford to use equity to the maximum
extent possible (50%) to service its VEBA funding obligation,
and could use equity to service its pension obligations as
Open-market debt repurchases, equity exchanges and equity
issuances may all be part of the equation, which in combination
with EBITDA growth, should result in fairly rapid deleveraging.
Ford's retention of Ford Credit is a positive to the company's
credit and earnings profile, but the company will remain at a
competitive disadvantage to transplant competitors with better
access to capital and a lower cost of capital.
Ford also termed out the majority of its December 2011 bank
agreement to 2013, addressing its pending near-term maturity
issue. The size of the facility was reduced from $10.7 billion
to $8.1 billion, with $7.2 billion of it maturing in 2013.
Ford and the auto industry still face numerous challenges
to regaining sustainable profitability and adequate returns on
investment. The industry will remain saddled with overcapacity
in the U.S. (and globally), despite significant capacity
reductions by the Detroit 3. The lower reset of the U.S. demand
curve, coupled with scheduled plant and product expansions
(Volkswagen, Kia, Fiat) indicate that overcapacity and the
associated price competition will remain characteristic of the
industry through the next cycle.
Over the near term, growing regulatory and legislative
issues are expected to increase industry costs, adversely
affect margins, restrict access to capital and elevate the cost
of capital. Such things as uel taxes, gas-guzzler taxes, state
and local tax levies, tax incentives, and environmental,
fuel-efficiency, safety and urban quality of life issues can
all serve to alter auto demand and investment, raising
uncertainties for investors. (See Fitch's report 'Macroeconomic
Concerns Cloud Recovery for U.S. Autos in 2010', dated Nov. 23,
2009 and available on Fitch's website.)
The upgrade of Ford Credit and its related subsidiaries
reflects the strong linkage between the ratings of Ford Credit
and Ford. In addition, Ford Credit has demonstrated the ability
to finance its business independent of government programs on
both a secured and unsecured basis, one key element driving the
upgrade of Ford.
With approximately $24 billion available, Ford Credit's
liquidity position is considered strong for the current rating.
These rating actions reflect the application of Fitch's current
criteria which are available at 'www.fitchratings.com' and
specifically include the following reports: