* Moody’s, S&P; rate Ford one notch below investment grade
* Better ratings would lower interest on consumer auto loans
-analyst
* Ford was last at investment grade from all major agencies
in 2005
By Deepa Seetharaman
DETROIT, April 24 (Reuters) – Fitch Ratings upgraded Ford
Motor Co to “investment grade” on Tuesday, a key step that
could lower borrowing costs and that brings the second-largest
U.S. automaker closer to reclaiming its Blue Oval trademark.
Ford mortgaged the famous logo and most of its other assets
six years ago in order to borrow money and pay for its
turnaround plan.
The upgrade is a reflection of Ford’s steps to shore up its
balance sheet since its near-collapse in 2006, Fitch said. Since
then, Ford lowered its break-even point, improved its vehicle
lineup and reduced its pension obligations.
“Fitch believes that the work that has been accomplished has
put the company in a solid position to withstand the significant
cyclical and secular pressures faced by the global auto
industry,” the ratings agency said in a release.
Still, Ford also faces the risk of slower-than-expected
global demand for vehicles, particularly in Europe, and a
relatively weak position in Asia, Fitch said.
Fitch is the first of the three major ratings agencies to
upgrade Ford to investment grade, ending a seven-year period in
which Ford debt was rated as “junk.” Fitch upgraded Ford and its
captive finance arm, Ford Credit, to “BBB-” from “BB+.” Its
outlook on both is “stable.”
Since the fall of 2006, Chief Executive Alan Mulally’s “One
Ford” strategy has been the centerpiece of the automaker’s
revival. The plan centers on unifying Ford’s once-disconnected
business units and taking advantage of its scale to drive down
costs and build a global brand.
In late 2006, Ford borrowed more than $23 billion to pay for
the turnaround plan, secured by most of its assets.
The Blue Oval logo and factories were among the assets that
Ford used to secure those loans. Should one more ratings agency
upgrade Ford to investment grade, the collateral underpinning
those loans will be released.
The return of the insignia, which is stamped on the grills
of Ford’s cars and trucks, would be a symbol of how far the
company has come since its financial crisis six years ago. The
Blue Oval logo has been in use for decades.
A higher rating would also help Ford lower its borrowing
costs, helping the core automotive operation and Ford Credit.
Ford Chief Financial Officer Bob Shanks called the Fitch
upgrade an “important proof point” validating the company’s
business plan.
“Our One Ford plan includes achieving strong investment
grade ratings and maintaining ‘investment grade’ throughout an
economic cycle,” Shanks said in a statement.
Ford was the only U.S. automaker not to accept a bailout
from the U.S. government during the 2008-2009 financial crisis.
Ford shares were up 0.8 percent at $11.44 on Tuesday afternoon.
LOWER COSTS
The last time Ford was rated as investment grade by all
three major ratings agencies was in May 2005.
The other two major ratings agencies, Moody’s Corp’s
Moody’s Investors Service and McGraw-Hill Cos Inc’s
Standard and Poor’s Ratings Service, each rate Ford a single
notch below “investment grade.”
Once all three agencies give Ford “investment grade” rating,
Ford Credit, the auto financing arm of Ford, will be able to get
lower borrowing rates that it could pass on to consumers, said
Morningstar analyst David Whiston.
“It will allow Ford to sell more cars,” said Whiston, whose
agency had already rated Ford investment grade.
In keeping with standard practice in the industry, Ford
Credit lends money to consumers and dealers, often at a lower
interest rate than it can obtain for itself. These rates can be
as low as zero percent and help boost vehicle sales.
In keeping with standard practice in the industry, Ford
Credit lends money to consumers and dealers, often at a lower
interest rate than it can obtain for itself. These rates can be
as low as zero percent and help boost vehicle sales. The upgrade
by Fitch can lower the cost of maintaining this strategy.
Since the downturn, Ford has invested more heavily in cars,
such as its Focus compact car and Fusion midsize sedan, to
satisfy consumers’ growing demand for fuel-efficient vehicles.
The new Focus car can better compete against rivals
including Honda Motor Co Ltd’s Civic and Toyota Motor
Corp’s Corolla, Fitch said.
“Ford’s more balanced product portfolio has put it in a
better position to weather the likely mix shifts to smaller
vehicles typically seen in economic downturns,” Fitch said.
Ford would still burn a “substantial” amount of cash in a
downturn, Fitch said, but Ford’s stockpile of cash and access to
liquidity would help the automaker withstand its cash burn. Ford
ended 2011 with a net cash position of nearly $10 billion.
But recessionary conditions in Western Europe and a slowdown
in growth in China and India pose a potential problem for Ford,
Fitch said. High energy prices, high unemployment and a weak
housing market present a risk to U.S. auto demand.
The automaker is expected to report first-quarter earnings
on Friday.
