By on August 30, 2018

Ford’s been wringing its corporate hands over stock prices for ages. While the market itself is generally rising, the Blue Oval seems to perpetually find itself in Wall Street’s basement. It is arguable that lackluster performance on this front cost Mark Fields his job earlier this year.

Things are not looking up in that department. Yesterday, FoMoCo’s credit rating was cut to Baa3 by Moody’s Investors Service, just a single notch above junk status.

Recently minted CEO Jim Hackett, formerly of Michigan furniture company Steelcase, and his merry band of Glass House denizens have recently set forth on an extensive restructuring program that could take years to complete. The automaker also bought the long-abandoned Michigan Central Station to restore it as hub for its future mobility ventures. Moody’s took a look at this activity, peered into their magic financial eight ball and said “the outlook is negative.”

Moody’s said the rating could be further downgraded if clear progress is not shown in its Fitness Redesign program by early-to-mid 2019. In fact, Moody’s described the chances of Ford’s rating being upgraded anytime through 2020 as “very modest.” Standard & Poors still rates Ford at BBB, which is two tiers above speculative.

Naturally, Ford spox raised their hands in protest, saying in a statement that the company has delivered strong financial results for nearly a decade. It also pointed to a strong balance sheet that provides financial flexibility.

The company has thrown all manner of items at its business model in an attempt to convince investors it’s worth the cash. From smart mobility (*retch*) to binning all its sedans, Ford is on a quest to reinvent itself and stem criticism from Wall Street. The amount of profit in the machine pictured at the top of this post is not lost on your author.

A decline into junk would be a disappointment to Ford after enjoying a half-dozen years of investment-grade status. Thanks to the foresight of Alan Mulally, a man who essentially mortgaged the company – including the fabled Blue Oval there on the building – for $23 billion back in 2006, the automaker avoided joining its U.S. peers in taking an embarrassing sojourn through bankruptcy during the financial crisis.

What is the road to a stock being labelled junk? A trio of ratings agencies assign grades to bonds, with AAA (Standard & Poors, Fitch) or Aaa (Moody’s) being the best or “prime.” When an investment falls below BBB- or Baa3 it becomes junk or speculative, as opposed to investment grade. There are sixteen ratings between prime and junk.

Ford’s stock has tumbled more than 20 percent, year to date, and as of this writing, sits below $10. General Motors has remained reliably above $35 since this time last year; FCA touched twenty euros earlier this year after spending all of 2016 and the first half of 2017 at half that price. The entirety of the S&P 500, meanwhile, has gained about 9.0 percent.

[Image: Ford Motor Company]

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87 Comments on “Money Matters: Moody’s Downgrades Ford to Near Junk...”


  • avatar
    thelaine

    Time to buy.

    • 0 avatar
      iddqd

      indeed…
      rating agencies need to be rated themselves…

      • 0 avatar
        Steve Biro

        iddqd… exactly. Triple-A credit ratings don’t mean much… as the financial crisis demonstrated to anyone who was paying attention. And, from what I can see, it’s happening again. Never mind Tesla. Maybe Ford should go private.

    • 0 avatar
      Ion

      Yeah I’ve always been kicking myself for not buying the last time around when Mulally took over. I remember laughing at Jim Kramer on the radio telling people to buy, course I was a freshman in hs at that point.

      I firmly believe the future mobility investments will pay off. The republicans can’t hold onto the EPA forever, and you better believe the Dems will push CAFE and the war on cars even harder.

    • 0 avatar
      raph

      I was thinking the same. Wait for Ford to hit around a dollar a share and buy a good size chunk (3-5k) and sit on it. If they go tits up (doubt it) or they restructure like GM no huge deal but if they can gain some traction and hit 10-15 bucks a share it will be a nice little sum.

  • avatar
    tylanner

    I am not surprised….as I just wasted an hour of my life finding new lugnuts for a 2013 focus after the tire shop said they were basically junk….a lugnut which is the subject of just one of countless lawsuits claiming Ford ineptitude…

    Now Steelcase….that is a company I can get behind….hopefully the new CEO can turn this around.

    • 0 avatar

      I had the same issue with Fusion and it does not go away. Dealership recommended third party lug nuts. But it does not help because the design is the same regardless of brand. It is not only Ford’s problem – all brands have this issue if they use the same type of lug nuts and I am sure they do.

  • avatar
    DeadWeight

    Another incredible, prescient prediction of mine unfolding in real time before all the world’s eyes.

    I won’t recite my long list of incredibly accurate past predictions that came true, spot on, from particular vehicles, to particular manufactures, and regarding particular executives and management, but this will turn out to be yet another DEAD ACCURATE ONE, as Jim HACKett and James Farley absolutely take Ford directly towards the iceberg, TITANIC STYLE.

    HACKETT AND FARLEY ARE SPREADING THEIR ARMS OUT AT THE BOW, AND FLYING WITH THE WIND RUNNI G THROUGH THEIR HAIR! They and their idiotic plans for Ford and Ford’s product mix will put Ford in serious jeopardy in an extremely rapid time frame.

  • avatar
    s_a_p

    I would be curious to know the basis of this rating. As far as I can tell the F-150 will not stop selling even at 7 dollar per gallon gasoline. In the short term, abandoning cars is wise and as long as they have a flexible platform that could be converted to building passenger cars again when they are in fashion this should be just fine. I can’t say I agree with this decision, but it shouldn’t be the death knell for Ford. The Lincoln Navigator is flying off the lots here in Houston as well, with reviews that call it better than the escalade to boot.

    That said, I don’t know how much debt they have, what their PnL looks like or other insider factors that would contribute to this rating. I don’t think that putting Buddy Hackett in charge was the best move, but sometimes having an outsider can work. I do wish they would figure out how to solve the last few quality issues Ive seen with their products. Things like cars not able to prevent water from entering the cabin when it rains, paint peeling off the hood after 2 years and other minor yet very annoying issues Ive seen in several family owned ford vehicles in recent history.

    • 0 avatar
      seth1065

      s_a_p,
      Spot on with your view of Ford dropping cars and the F150 as well, it seems like Ford has more issues with their production than most OEM’s I could be wrong but it seems that way.

      Yes Ford avoided bankruptcy but they mortgaged everything to do it and it worked BUT you gotta pay that back and that may be what the rating companies see as an issue.

    • 0 avatar

      Here’s the rationale:

      The downgrade of Ford’s rating reflects the erosion in the company’s global business position and the challenges it will face implementing its Fitness Redesign program. Negative developments impacting Ford include: softening margins in North America driven by higher costs; reversal of its Chinese operations in which EBIT has fallen from a $70 million profit in the first half of 2017, to a $633 million loss in the first half of 2018; strain in the South American operations that lost $750 million in 2017; and, continued losses in Europe which are likely to worsen because of Brexit related costs from Ford’s UK operations. These pressures have contributed to an erosion in Ford’s key credit metrics between 2016 and the twelve months ending June 2018, including: EBITA margin falling from 4.2% to 2.0%; debt/EBITDA rising from 2.6x to 3.3x; and EBITA/interest declining from 4.5x to 1.8x.

      Under the Fitness program, Ford will reassess all parts of its business portfolio with the goal of restructuring, contracting or exiting businesses that will not be able to generate adequate returns. Restructuring initiatives could entail $11 billion in charges with $7 billion in related cash expenditures over the next 3 to 5 years. For example, the company’s decision to wind-down its car business in North America, which we viewed as credit-positive, reflects its willingness to make aggressively-disciplined capital allocation decisions.

    • 0 avatar
      JimZ

      “I would be curious to know the basis of this rating.”

      as far as I can guess, it’s “we expected a new CEO to turn things around in a year in an industry with 3-4 year lead times.”

    • 0 avatar
      stuki

      “..as long as they have a flexible platform that could be converted to building passenger cars again when they are in fashion this should be just fine.”

      Stop building your biceps, and it atrophies. Ditto all else, including passenger cars.

      If you cannot make money in the most hotly contested and competitive segment of the market, you need to solve that problem. Not pull a rerun of Motown-in-the-70s, insisting “all the profits are in big cars” that the Japs don’t make”

      It’s much, much easier to expand upwards from a lowest cost position, than to move downwards from a “luxury” one. The latter is flat out easy, if you discount erosion of your brand over time. The makes that will thrive in the future, are those who can sell profitably to Indonesians and Indians, not oilflush Houstoonites. As the volumes available in the former markets, will allow for efficiencies translating into lower cost for products sold to the latter as well. But not vice versa.

      • 0 avatar
        JDG1980

        “If you cannot make money in the most hotly contested and competitive segment of the market, you need to solve that problem.”

        Sedans aren’t “the most hotly contested and competitive segment of the market”. Not even close. Pickups, crossovers, and SUVs are where it’s at these days.

  • avatar
    thornmark

    reminds of what companies like Time-Warner and the NYTimes did w/ the internet.

    dumped untold millions into a hole and got nothing while neglecting their core business

    “mobility” is the hole

    if something happens to the truck market, like real price competition, Ford is especially bad off

  • avatar
    stars9texashockey

    But surely a train station full of hipsters will solve all of Ford’s problems.

  • avatar
    thegamper

    I think this has more to do with too much reliance on North America and the F150 than anything else. Carve out F150 sales in North America and you probably have a money losing company every quarter for the last 10 years.

    A golden goose such as the 150 is hardly a bad problem to have, but I think investors would like to see more insulation from F150 sales. The fact that Ford is losing money in other important regions, including China somehow, is troubling to say the least.

    Its a world market, not a North American Pickup truck market. Wholesale throwing in the towel on cars just proves how reliant Ford is on a single product in the North American market.

    That being said, junk doesn’t quite seem appropriate, but I think it is based on Ford’s murky plan for the future. Can the F150 company compete, thrive or even survive in an electric, self-driving, ride-haling future? I think that is really the only issue driving the rating.

    • 0 avatar
      iddqd

      Ford invests 11 billion $ by 2022 in electric vehicles and is planning 40 EV`s by 2022.
      nuff said.
      moodys is plain BS.

      • 0 avatar
        iddqd

        i`d even go a step further and ivenstigate MOODY`S and all the rest by the SEC for plain bribary and inside deals.

      • 0 avatar
        thegamper

        That sort of investment is nothing to scoff at, but Ford has yet to earn any money of that investment. 22 electric models will also be quite an accomplishment….if they can turn a profit selling them. That’s a big if. After all, Ford couldn’t turn a profit from selling the Focus and Fusion built in Mexico using parts bin components. The electric car biz is going to be a loss leader for the foreseeable future for mainstream car companies. F150 will still keep the company afloat for the foreseeable future.

        Until they can actually wean themselves off of the F150, rating agencies wont be impressed.

        • 0 avatar
          iddqd

          that`s correct, but since the EV- argument was stated..
          11 billion is about quadruple the amount tesla invested- EVER-
          yet tesla is still being treated as the holygrail of EV.

          I don`t get it- people are stupid.

          • 0 avatar
            thegamper

            TESLA is actually rated junk by Moody’s I believe. The stock price has always been based on what could be, not grounded in any fundamentals like “profit”.

          • 0 avatar

            Tesla, Inc. Corporates
            Long Term Rtg B3, 27 Mar 2018
            Long Term Watch Not on Watch
            ST Issuer Level Rtg SGL-4, 27 Mar 2018
            ST Issuer Level Watch Not on Watch
            Outlook Negative, 27 Mar 2018
            Industry AUTOMOTIVE: PASSENGER
            Domicile UNITED STATES

            Yep, Tesla is junk rated, and as low a B as you can get, before you’re in the bottom tier C class.

        • 0 avatar
          Scoutdude

          That is 22 electrified models, so not just EVs, Hybrids and Plug in Hybrids too. I expect Ford will make good money on the upcoming Escape, Explorer and F-150 Hybrids.

          Ford did make money on the Fusion but they decided that it was unlikely to make a profit in the future, hence not spending the money to design a replacement for the current car.

    • 0 avatar
      JDG1980

      “Can the F150 company compete, thrive or even survive in an electric, self-driving, ride-haling future?”

      There’s a hybrid F-150 already in the pipeline for 2020. For most buyers, given the current state of technology, a hybrid vehicle is going to be better than pure electric because it doesn’t require such a large and expensive battery pack, and doesn’t risk running out of electricity while on long trips. Ford’s existing hybrids are of good quality, they just aren’t the type of vehicles people like. A hybrid F-150 is going to be a huge sales hit. A half-ton pickup that can get 25-30 mpg around town is just about the perfect vehicle for suburban Americans.

      Ride-sharing is a marginal phenomenon. It may displace a few cars in urban areas, but it isn’t going to matter throughout the majority of the country. And many of the cars it does displace will be second cars, often older vehicles – not the main family car/truck.

      Self-driving cars will come eventually, but the last 20% is turning out to be 80% of the effort. And it’s not clear to me that every car company needs to have their own technological effort in-house rather than simply licensing it from the companies that specialize in that area. And make no mistake about it, self-driving cars will still mostly be under conventional ownership; all the stuff about how people will use ride-sharing full-time is self-serving fantasy from urbanites who have no idea how the rest of America is configured.

    • 0 avatar
      Guitar man

      The opposite is the case, no car companies are more dependent on North America than FCA and GM.

      The stock brokers want Ford to do a Mary and exit everywhere except North America.

      • 0 avatar
        bufguy

        Gm is huge in China….a more important and lucrative market than north america…Ford has a much smaller presence in Asia…. General Motors and its joint ventures sold more than 4 million vehicles in China for the first time in 2017. Retail sales totaled 4,040,789 units, which was up 4.4 percent from the previous high in 2016. China was GM’s largest retail market for the sixth consecutive year.

  • avatar
    danio3834

    I’ve had this stock for years and it’s been a real POS. Seemed like a no brainer 8-9 years ago with a rebound certain, but the stock movement defies standard logic. Not sexy like TSLA I guess.

  • avatar
    Menar Fromarz

    Forget Tesla. If there is a firm that should go private again it’s this one.

  • avatar

    This near junk rating is almost certainly a result of Fords absurd plan to cancel just about all their passenger cars. I think Fields less reactionary approach was preferable to Hackett’s alarmism. Hackett’s vision seems muddled and obtuse to investors.

  • avatar
    R Henry

    Tesla has never earned a profit on its dribbles of production of baubles for the rich, yet remains the darling of Wall Street…while Ford production is enormous, its markets diversified, and is profitable. If ever there was an example of Wall Street ridiculousness, its crush on Elon Musk is the perfect example.

    • 0 avatar
      I_like_stuff

      Bbbbut Tesla is leading the EV market which is a whopping 1.5% of the overall auto market. So it’s totes like awesome and deserves a market cap of $50B. Profits? Who needs ’em. Did you see how cool those cars look? All the Whole Foods parking lots in San Jose are full of Teslas, so it means the company is a huge success!!

      • 0 avatar
        Vulpine

        “Bbbbut Tesla is leading the EV market which is a whopping 1.5% of the overall auto market.”

        — … and 50% of the EV market.

        • 0 avatar
          TwoBelugas

          “and 50% of the EV market.”

          Then here is a toast hoping they take over more of the EV market and lose even more money.

          • 0 avatar
            iddqd

            all the VW brands plan to have at least 50% EV´s in their lineup by 2022…
            you have to see, that with higher production numbers, the costs drops… and if the estimates for Tesla are remotely true, there is a HUGE margin in EV`s…(30% allegedly for telsa)

          • 0 avatar
            I_like_stuff

            Oh WOW!! VW plans to do stuff by 2022….like a 5 year plan? Those never fail. I remember back in the fun days of the late 90s when Pets.com had a plan to sell a lot of things in 2002. Good times. Good times man.

            EVs are at best a niche market, at worst a fad. Any company valued at $50B based solely on this fad/niche is either a colossal joke or a massive fraud. I’m going with the latter in Tesla’s case.

            But wait a second, Tesla is changing the world man. So it it totally going to be worth a gajillion dollars some day. Yep, just like Flooz and WebVan and Kozmo.com were changing the world too. I was around back then in SV, and drank a lot of the kool aid too. I learned my lesson. Sadly 20 years later, the same kool aid is being guzzled once again.

          • 0 avatar
            Vulpine

            Just a note, I_L_S;

            I drank some Kool Aid back in Y2K. As a result, I am now 49000% richer than I was then.

    • 0 avatar

      At least Tesla’s alive as opposed to the funeral home Ford has become.

      • 0 avatar
        iddqd

        @I_like_stuff
        i hear ya- i am not convinced by ANYTHING surpassing the next 24 months in this market…
        but this is what they claim, so take it for what it`s worth…
        same with the tesla-margins- this was estimated by Munro`s lately, correcting their original statement-
        if you ask me, i`d rather place my bet on VW fulfilling their goals rather than Tesla having a 30% margin as claimed…
        w/e, i prefer combustion.

      • 0 avatar
        raph

        @ akear

        Well I guess Tesla is kind of “Weekend at Bernie’s” alive if you look at them through a set of red spectecles.

        I’m not entirely convinced Musk’s abberant behavior is entirely due to him engaging in a 120 hour work week and micro-dosing mushrooms to minimize the effects of sleep deprivation. I think he’s in panic mode and while thats only an observation a friend of mine works for a non-automotive supplier to Tesla and she has been talking about how hard it is to get thier money.

        Ominous portent? I dont know but I think even with a junk rating Ford is most likely a better long term investment than Tesla will turn out to be.

    • 0 avatar
      thegamper

      Tesla is hardly for the rich. If we are comparing them to Ford….Ford sells $40-$100k pickups by the boatload, cannot make enough Navigators at $100K.

      Tesla might cater to the higher end, but no more so than Ford. Tesla just doesn’t serve the low end of the market as Ford does…..used to?

      • 0 avatar
        SCE to AUX

        @thegamper: Quite right. Somehow the buyers of Tesla’s expensive cars are different from the buyers of Ford’s expensive cars. Or BMW, Mercedes, Jaguar, etc.

  • avatar
    I_like_stuff

    I was offered a job at Moody’s out of college. But the idea of spending 60 hours a week as a bond analyst made me shiver with fear of boredom. Instead I went to a .com that ironically enough, Moody’s said was in tip top shape less than a year before it went out of business.

    Conclusion: I really couldn’t care less what Moody’s has to say about anything. The entire bond rating industry is a combination of stupidity and fraud. Think of Tesla but on a much bigger scale.

    A 23 year old did most of the work on this rating. He (or she I suppose maybe) spent days and days gathering all sorts of numbers, throwing them into a spreadsheet. Then their manager took a 5 minute look at it said yeah, this looks OK I guess. Said manager being 26 years old.

    This is how Moody’s works, how S&P works, how Fitch works, how every Wall St analysis works. It’s overworked 20-somethings throwing out numbers. In 2007 all the big banks had A ratings from all the analysts. How’d that all work out?

  • avatar
    red79

    …From the great minds at the credit rating agencies who brought you the financial crisis…

  • avatar
    Vulpine

    Ford is now making the same kinds of mistakes GM made the previous decade. Canceling cars because they’re not selling enough is just like GM’s shutting down several marques because they didn’t sell enough. Instead of trying to cut costs, they should be trying to increase sales… most notably by listening to what people want instead of assuming they know better than their customers.

    Billions spent making aluminum bodies for pickup trucks… Why? Lighter weight? Much better if they’d been a little more conservative and only put the aluminum where it couldn’t be hurt by everyday occurrances. There are other ways to lighten up without making your vehicle “soft” to incidental events. GM and RAM have already demonstrated similar weight reductions without going ‘all aluminum’ and with the new GMC Sierra, they’ve eliminated that punch-through problem of the aluminum bed that required a heavy, spray-in liner to serve the same purpose of an all-fiber liner at a much lighter weight.

    Now, don’t get me wrong; aluminum is a great material when used properly. Aircraft use a lot of aluminum and said aircraft have remarkably rigid structures for their load floors… but they’re not millimeter-thick sheets of aluminum trying to hold hundreds of pounds of weight, they’re honeycombed panels with similar strength to an equal thickness of wood under the same load. A 1′ x 3′ plank of 1″ pine, while somewhat flexible is quite strong when properly supported around all edges; a similarly-sized aluminum honeycomb weighs mere ounces and is more rigid while holding the same weight. Great for the truck’s bed, especially if including a layer of impermeable plastic to protect the aluminum from the elements and wear. But as body panels? I suggest looking at the belly of most aircraft using aluminum skin panels. There’s a reason they’re protected by significantly thicker metal, especially behind the wheels where foreign object damage tends to occur.

    All that expense for a marginal improvement in fuel economy and not even 700# in weight reduction. The high-strength steel framing for both chassis and cab structure did more in reducing weight and improving safety, allowing the aluminum body to work at all. They could have gotten away with a Saturn-style plastic body far more easily and cheaply, eliminating the expensive maintenance and repair costs associated with that aluminum… and quite probably would have eliminated the whole of the galvanic corrosion that those Ford trucks are just now realizing… worse even than ordinary rust. You look at an old polymer-bodied Saturn and the body tends to look as smooth as the day it was formed, even if the paint is completely missing. You also don’t hear of much rust on a Saturn, though they may be otherwise completely worn out. And like aluminum, those polymer panels can be recycled just as easily and made into numerous other products.

    So yes, Ford squandered the money it ‘saved’ by avoiding bankruptcy in ’08. They’ve done some few things right but now they’re doing everything wrong.

  • avatar
    civicjohn

    Have held it for well over 30 years, through the Ford family’s “special dividends” of $20/ share, many other payouts, you name it. The family really loves those payouts, and when they were selling the hell out of Tauruses (Tarursi?), I didn’t care. I was semi-impressed when they appeared to navigate the waters during the last financial crisis, while the normal bankruptcy process was turned on its head and my GM shares and bonds were wiped out to keep the unions happy.

    I’ve said on this site that I’m finally unwinding my position. The next 6.2% dividend payout comes on 9/4, and if you want to buy on a dip, that’s the time. I don’t think that dividend will last forever – I called Ford a mutual fund that makes F-150s, and I feel that way more than ever. Ford Credit helps move a lot of trucks, but I don’t buy into their (or really anybody’s) autonomous plans being close to profitability in the next 5 years or so, and my investing horizon won’t last as long as some of you youngsters around here!

    However, I do agree with the general assessment of Moody’s et al, they don’t have a clue, maybe it’s a buy and hold for 20+ years. I just wish they could find management that was up to the task. The best bet I ever made was hitching my wagon to Jamie Dimon, who is absolutely the best CEO in the US. JP Morgan has been spectacular during his tenure, so management DOES matter.

    Ford helped me make my decision when they bought that dilapidated building. I’ll keep 3-400 shares, but their current vision is about as good as a drunk driver with their headlights off in the middle of the night.

    • 0 avatar
      iddqd

      you say they might be hold/buy for 20+ years even though moody`s rated them as JUNK, yet you praise moody´s…
      find the fault.

      • 0 avatar
        civicjohn

        @iddqd, I said that “I agree with the general assessment of Moody’s, et al, they don’t have a clue”, meaning that I agreed with the comments about Moody’s in this thread, not that I agree with Moody’s.

        Sorry that I wasn’t clear in that regard. Moody’s can go suck a tailpipe.

  • avatar
    IBx1

    I wonder why Ford is being singled out and why their mObiLItY CoMpAny approach isn’t working like it is for everyone else. Stock markets are stupid and buyers are illogically fickle.

  • avatar

    This thread is as good as a Ford deathwatch.

    Whst a disgrace!

  • avatar
    gasser

    I agree with the unreliability of the bond rating systems. That said, I don’t find Ford in a strong financial position. I was increasingly frustrated with their “recall of the month” program over the last year. Their products seem so cheapened that they didn’t appeal to me, a then stockholder. The final straw was the purchase of the dilapidated train station. That will cost a fortune to reconfigure and bring up to code; FAR more than building a new, custom designed headquarters would cost. Before you pull the nickels and dimes out of your production costs, perhaps you should pull the dollars out of your pie in the sky expansions.

  • avatar
    vehic1

    I_like_stuff: 1) Even to 2022 – well after the 2020 beginning of VW EVs – that would be a Four year plan.
    2) “EVs a niche, or fad”? Apparently, you’ve missed your calling as the greatest prognosticator of worldwide automotive trends; if only more of the major manufacturers had listened to your eternal wisdom – the billions they’d have saved?

  • avatar
    jacob_coulter

    I own a bit of Ford stock, and I bought it when it was at a low a few years ago. Can’t wait to unload it.

    The F-150 is all that keeps that company afloat.

    That being said, it’s absurd that any credit rating agency would rate its debt as junk grade.

    • 0 avatar
      pragmatic

      If the F150 is the only thing keeping Ford afloat and with newer Ram and GMC pickups out, profit margins on the F150 will slip. The company’s debt need to be downgraded (they have less means to service the debt).

  • avatar
    EBFlex

    Ford is the ICE version of Tesla.

    Both companies are run by dim wits who have no idea what they are doing and are in way over their head. The only advantage is that Hackett doesn’t know how to use Twitter.

  • avatar
    deanst

    So much misinformation- where to start?

    Ratings agencies do not rate stock, they rate bonds. A rating is not an evaluation of the investment potential, it is a measure of risk.

    For all those who commented – do you know the current debt levels of Ford? Do you know what the current level of earnings are? It’s cash flow? The historical volatility of its earnings? These are just the starting point for a rating. Yes, I’ve working for a rating agency, and yes I’ve valued corporate bonds for a few decades, and yes, I’ve managed billion dollar bond funds.

    I haven’t read Moody’s report, but I suspect the downgrade was influenced by a few things. One, Ford is undergoing a restructuring which will impact its cash flow- even if all goes according to plan. Two, we are in one of the longest economic expansions in history, suggesting a downturn is coming. Three, Ford is very dependant on North America, and dependant on one line of vehicles – their pickups. These are just the facts. Yes, these are all backward looking, and the future can not be predicted with 100% accuracy. If you think their restructuring will turn out well and/or the economy will continue to grow and/or gas will continue to be cheap, Ford could be a great investment. Moody’s is just saying the risk is elevated.

    Ratings agencies have their issues, but most of the employees actually care about their work and are quite diligent. The biggest issue before the financial crisis was in investment products linked to housing prices. As North America had never had a nation wide decrease in housing prices in decades, none of the agencies models took this potential into consideration. This is obviously the problem with backward looking models – poor or limited historical data leads to poor predictions of the future.

    • 0 avatar
      DenverMike

      “…Ford is very dependent on…”

      When was the last time Ford HASN’T been dependent on pickups? But they’ve been VERY DEPENDENT on smaller cars just as long for another good reason: Taking a loss.

      So imagine if Ford had quit while it was ahead (Pinto!) and the massive mountain of cash and gold it’d have stockpiled by now.

      It’s as if pubic companies aren’t allowed to hoard huge lots of cash, just for a rainy day or whatever. It must be reinvested immediately, pushing it to the line, even if it means taking a loss, I’m guessing, while setting themselves up for disaster in the next minor economic downturn.

      Real estate can be dumped in a pinch, no different than loser brands like Volvo, Jag and others. Except there’s no diversity in putting excess capital within the same industry.

      Even with meaningful changes in vehicle buying habits, who says they have to be long term? What if those changes mean now everyone buys a fullsize pickup? And Vulpine buys two!

  • avatar
    mfrank

    Ford has $137 BILLION dollars in debt and that’s what’s causing their low credit rating. GM was able to shed more debt in bankruptcy, so it only has $176 Billion in liabilities compared to Ford’s $222 Billion.

    I knew Ford was in trouble years ago when I saw the MOUNTAIN of debt they were carrying. The credit rating agencies made the right call.

    • 0 avatar
      DeadWeight

      Corporate debt is one of the three legs of the stool that will be taken out and cause the next financial/economic crisis.

      Almost no one is discussing the incredible and record high (in real dollar terms) levels of corporate debt today, as corporations sell bonds to repurchase shares of their own stock, acquire competitors (instead of grow organically), and borrow in this way and in other ways at a feverish pace (nearly any corporation, no matter how bad its credit, can borrow massive amounts of $ at relatively obscenely low interest rates right now).

      When the reversal comes, and the expensive shares that were purchased by low-yield bonds fall significantly in value, corporations with debt and slowing sales/revenue/profit (maybe negative cash flow) will get monkeyhammered.

    • 0 avatar
      deanst

      Sigh.

      The vast majority of the debt is related to their lease and lending business. The risk with this is residual values and the ability of fords customers to service their loan/lease obligations. Only a small part of the debt is related to the manufacturing business. GM has less debt because it had to rebuild its consumer finance business after bankruptcy.

  • avatar
    namesakeone

    Part of me wants to assure my Ford-fan self that the stock price is but one indicator of success. There are many ways to increase a stock price. One of the fastest is to buy back treasury stock–which does nothing for the actual health of the company, but sure makes the stockholders happy. Increasing real-world productivity–introducing a promising new product, which would take procuring new facilities, designing and developing said product, hiring and training new people–if successful, also increases the stock price…years from now. Too many corporations are choosing the former over any other plan of action, simply because the stockholders, lusting for a huge payday (right now, please), demand it. I was hoping for some indication that Ford was bucking the trend and going for the long-term solution.

    Then I remembered that Ford is in the process of discontinuing most of its passenger car lines to “concentrate” on what is selling now, and leaving themselves hugely vulnerable to a change in the economy and what may be in demand X-years from now. So much for my faith in Ford. I hope I’m wrong, but I don’t think this is the time to buy.


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