Ford Shares Drop On Moody's Downgrade; Rating Agency Sees 'Considerable' Challenges

Shares of Ford Motor Company F were falling after Moody’s Investors Services cut its credit rating to junk status.

Moody’s downgraded Ford’s debt rating from Baa3 to Ba1, a non-investment grade rating, citing “considerable operating and marketing challenges facing Ford, and the weak earnings and cash generation likely as the company pursues a lengthy and costly restructuring plan.”

Ford’s restructuring plan may last several years and comes with a potential cash cost of $7 billion, Moody's said, adding that the company’s cash flow and profit margins are not as good as investment-grade rated auto industry peers.

Market Downturn

The timing is bad too, Moody’s said.

“The erosion in Ford's performance has occurred during a period in which global automotive conditions have been fairly healthy,” Moody’s said in a rating note.

“Ford now faces the challenge of addressing these operational problems as demand in major markets is softening, and as the auto industry is contending with an unprecedented pace of change relating to vehicle electrification, autonomous driving, ride sharing and increasingly burdensome emission regulations.”

Shares Down

Ford stock was down 4.35% at $9.14 at the time of publication Tuesday. 

Ford said in a statement that it's making “significant progress” on a global redesign, updating its products and “aggressively restructuring” its businesses around the world.

The underlying business is strong and the balance sheet is solid, according to Dearborn. 

Fitch Ratings and S&P Global have Ford rated BBB, which is two steps above junk status.

DOJ Antitrust Threat Over Clean Air Compromise

Ford and other automakers are also in the crosshairs of the Trump administration over the car companies’ efforts to compromise with California on clean air rules.

The White House wants to strip the state’s authority to set its own emissions standards — and automakers have been cooperating with California on compromise clean air goals.

But Trump wants weaker emissions standards and has criticized the car company executives as "foolish," "crazy" and "politcally correct" for trying to work with California rather than siding with Washington on the effort to rollback Obama-era emissions limits.

My proposal to the politically correct Automobile Companies would lower the average price of a car to consumers by more than $3000, while at the same time making the cars substantially safer. Engines would run smoother. Very little impact on the environment! Foolish executives!

— Donald J. Trump (@realDonaldTrump) August 21, 2019

The administration warned that it could investigate the companies for antitrust violations for working with California on the issue, drawing a rebuke Monday from House Democrats, who said there was no antitrust issue in play and that the threatened investigation would amount to an abuse of power by the White House.

Related Links:

5 Earnings Season Takeaways For Auto Investors 

Morgan Stanley Upgrades Ford, Still Cautious On US Autos

Photo by Dave Parker via Wikimedia.