Ford credit rating slashed again

Ford Motor Company’s credit rating has sunk deeper into junk bond levels as Moody’s Investors Service joined Standard & Poor’s in slashing that standing while analysts wait to see what the company’s restructuring plan entails.

The BBC reported Fitch Ratings had lowered Ford’s rating because it believes Ford’s income will continue to decline throughout this year. In April, the company announced a $1.19 billion quarterly loss as it battles sagging sales in the U.S.

Ford’s North American operations lost $1.4 billion in the first nine months of last year. Ford Chairman William Ford said that, overall, the company remains profitable: “Nobody likes to be downgraded,” he said. “It’s up to us to prove their analysis wrong. One of the misperceptions that’s out there is that we’re losing money as a corporation. We’re going to be solidly profitable in ’05 when we close the books.”

Those comments were reported on and in Auto News.

In its report, Moody’s said it expects Ford will be under strong financial stress all the way through 2007, despite massive cost-cutting efforts, which could include closing 10 plants and trimming 30,000 jobs.

Chairman Ford hasn’t revealed any details of the cost reduction plan, saying only that it will be painful. It is the second reorganization effort for the company in four years, and many are skeptical whether it can reverse the downtrend of the automaker’s slumping sales.

Fitch Ratings said Ford’s revenues are struggling “due to continued market share losses, deteriorating [product] mix, price competition, a lack of key product introductions, coupled with lack of tangible progress in reducing its cost structure.”

Moody’s also dropped the long-term rating of Ford’s credit arm, Ford Motor Credit Co. A poor credit rating means a company will have a tougher time borrowing money and indicates that company is more likely to default on a loan and, therefore, will face much higher interest rates. Moody’s estimated Ford Credit holds about $130 billion in debt, much of which must be refinanced. Standard & Poor’s Ratings Services had earlier pushed Ford’s credit rating into junk bond country.

The BBC said: “Given that most of the U.S. major airlines and all three of the U.S. major auto manufacturers are more-or-less bankrupt, you might conclude the effects of peak oil (high oil prices) have already started to kick in, even though peak itself may not have arrived yet.

In a rather bleak article titled “Peak Oil Passnotes: Zarqawi Don’t Drive,” published by Resource Investor, Edward Tapamor concluded: “There is one thing and one thing alone that can bring them (oil prices) down and that is a recession.” That being the case, it is difficult to see how the U.S. airlines or auto manufacturers can win now, nevermind post-peak.”

From the July 5-11, 2006, issue

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