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

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]