Junk Food: Ford's Debt Rating Downgraded by Moody's

Matthew Guy
by Matthew Guy

It should surprise no one that the fortunes of a car company aren’t solely tied to the quality or relevance of the vehicles they produce. Much also hinges on Wall Street’s confidence in the place and, as of now, the money mavens don’t seem to have much conviction in Ford at all.

Moody’s, the investor services company which rates fixed-income debt securities, has downgraded Ford’s credit to junk status. They kicked it out of Baa3 and into Ba1 territory, which is the first rung of junk, a term which simply translates into non-investment speculative grade debt. This preceding phrase causes your author’s mind to spin even more than it does after studying assembly instructions for an IKEA Vittsjö shelving unit.

Chief amongst the reasons for its downgrade is Moody’s assertion that Ford is in the throes of “considerable operating and market challenges” brought about by weak earnings thanks to a protracted and expensive restructuring plan. That sentence, unlike the financial mumbo-jumbo, is totally clear to the gearheads on staff and in our audience.

The comeback plan touted by CEO Jim Hackett is moving at the speed of a somnambulant glacier, despite the company touting various new products like the Explorer and hairy-chested Aviator (the whole of Lincoln has some great products compared to its competition, it must be noted). However, there is an alarming lack of urgency in other important areas of its portfolio.

Bronco has yet to break cover, along with variants like its Escape-sized baby brother. The F-150 continues to enjoy sales success but rumors abound that its development team is scrambling to catch up to Ram in the infotainment department. Ranger is offered with a single engine selection and no Raptor variant. And, let’s be honest, they’ve not really offered any sort of true replacements for all the sedans they binned last year. Do you really think many folks are coming out of a $14,000 Fiesta and into a $20,000 EcoSport?

Hackett’s managing style has been described as “cerebral” by those on the inside. The man is clearly sharp as a tack but Wall Street has been losing patience with an occasionally meandering narrative and profit margins that are below expectations. While the CEO certainly doesn’t move all the levers at a company, the buck does indeed stop at their desk.

Why is this important? Junk status potentially hinders a company’s ability to borrow money and repay debt thanks to higher interest rates. Ford’s shares were down 3 percent to $9.25 in Tuesday premarket trading and currently sit at $9.42. General Motors trades at $39.58 while FCA sits at 12.56 Euros (about $14 USD).

[Image: Ford]

Matthew Guy
Matthew Guy

Matthew buys, sells, fixes, & races cars. As a human index of auto & auction knowledge, he is fond of making money and offering loud opinions.

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  • Inside Looking Out Inside Looking Out on Sep 11, 2019

    Much ado about nothing. What a wonderful, wonderful day we have! But I still insist on Bob Nardelli - the (future) savior of American automobile industry.

  • Jeff S Jeff S on Sep 11, 2019

    Didn't say anything about the profitability of small and midsize cars, I said that eventually big trucks will not be such a big seller. If you are looking at short term meaning the next 5 or so years then I would say yes sales will be high. Nothing lasts forever whether it be the large land yacht cars of the past, station wagons, mini vans, utes, and some other vehicles. Can you say for sure that big trucks will be selling like hot cakes in the next 10, 20, and 30 years? At one time full size cars and wagons were the most profitable vehicles sold by the Big 3 and were selling in record numbers. Do you believe that the Big 3 would have ever believed that one day those large sedans would become almost extinct? Would manufacturers in the 60's and early 70's have ever believed that station wagons would one day be displaced by minivans, then suvs, and then crossovers. For now the popularity of big trucks, big suvs, and crossovers make them a sure bet. Nothing is a sure bet forever, if it were we would all be rich.

    • HotPotato HotPotato on Sep 18, 2019

      It does seem like compact CUVs are the perfect vehicle for our times. High hip point for people getting up in years. Soft, long-travel suspension for deteriorating roads. Actual rear headroom, something that has vanished from sedans as literally every single one on the market has adopted coupelike rooflines. Ample cargo room. Reasonable footprint that's not too hard to park. Butch styling cues for insecure men, and high-riding sightlines for short women. And you can price them one full size class above the sedan on the actual platform they're built on. OK, they're a little slower than their sedan equivalents, but everything has enough horsepower these days. So everybody wins... unless they like value for money, sporty handling, or good highway MPG, of course.

  • Slavuta "The fuel-economy numbers are solid, especially the 32 mpg on the highway"My v6 Highlander did 31 over 10 hour highway trip
  • Aja8888 As I type this, my 4 months old Equinox's Onstar module that controls the phone is broken. Yep, 4 months (never worked right from day one). Replacement will be a REFURBISHED unit since no new ones can be obtained (from China?). I really don't miss the phone via Bluetooth. And I have a great Garmin that I have used for years for trips which has free lifetime maps and traffic.
  • Bd2 There's a reason why talented American execs have been leaving Stellantis in droves.Tavares seems intent in following "Le Cost Cutter" Ghosn into driving his company into the dirt, whilst "justifying" his ever expanding compensation.
  • Bd2 Too bad gm didn't make the C8 better looking to begin with...
  • GregLocock Not interested at all. Apparently I've got Apple car play but I've never used it in 3 years. The built in nav is ok.