Automaker receives much needed credit boost.
The Ford Motor Company’s credit rating has improved, following the company reaching an important labor agreement with its U.S. union workforce. Credit rating firm Standard & Poor’s raised Ford’s rating by two places last week, although the increase still leaves the automaker in junk bond territory. S&P also noted that Ford is performing better globally and has an adequate cash flow, important considerations when reviewing corporate finances.
The move by S&P follows a similar decision made by Fitch Ratings to give Ford a boost and from Moody’s Investor Services, which decided earlier this month to review Ford for an upgrade.
Ford Performance
Ford has been outperforming the General Motors Company and Chrysler Group, LLC, over the past two years, but did not benefit from a government bail out as did its peers. Thus, Ford has had to strike its own path to recovery, paying down billions of dollars in debt and finding ways to cut costs.
Following laying off tens of thousands of workers, Ford has stabilized its workforce. Those moves has resulted in record profits for the automaker, but it took reaching an agreement with its rank and file workers to enable the company to enjoy a better position with its creditors.
Investment Grade
With S&P, Ford now has a double-B-plus rating, up from double-B-minus where Ford has been since May 2005. Ford’s credit rating is now just one notch from investment grade, but S&P only gives the company a one-in-three chance of being upgraded within the next year. Investors are cautious in a market that is showing signs of a double-dip recession, although car sales are up by about 10 percent for this year and Ford is firmly entrenched in second place behind perennial U.S. sales leader G.M.
Ford has seen success in 2011 with strong truck sales, increased demand for its smaller cars including the Focus and Fiesta, and steady demand for its Fusion midsize sedans and for its crossover models. Additional new products are on the way including a full-size Transit van, the next generation Fusion and a compact car for its luxury Lincoln brand.
References
The Wall Street Journal: S&P Raises Ford Credit Rating; Nathalie Tadena; October 21, 2011
Ford Motor Company: Ford Responds to Standard & Poor’s Announcement; May 5, 2005