By on September 10, 2019

 

2020 Ford Escape

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]

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67 Comments on “Junk Food: Ford’s Debt Rating Downgraded by Moody’s...”


  • avatar
    Alasdair

    Ford’s debt rating is junk, just like the Chinese-made Focus Ford tried to ram down the throats of American car buyers would have been junk too.

  • avatar
    Steve203

    I haven’t had any use for Jim Hackett since my days working for a Steelcase dealership.

    Wall St wants a clear picture of where he is taking the company and what those Billions in restructuring charges are going for, but all anyone gets out of Hackett is buzzwords like “fitness”.

    *That* is the problem with Ford.

  • avatar
    Mike-NB2

    “Do you really think many folks are coming out of a $14,000 Fiesta and into a $20,000 EcoSport?”

    I can’t imagine many folks coming out of ANYTHING and into an EcoSport.

    • 0 avatar
      N8iveVA

      I’m a Ford guy and I tried to talk my neighbor out of getting an Ecosport for his daughter. Oddly enough a year later she still loves that homely runt of a CUV. But back to the Fiesta. Was Ford making or losing money on each Fiesta sold in the US?

      • 0 avatar

        I’m pretty sure Fiesta lost money in NA since several of those years they claimed all profit was from SUV’s and F series in NA.

      • 0 avatar
        cprescott

        I’ve owned nothing but Fords as an adult over the past 39 years. My last Ford I bought new and it was remarkably durable for 22 years. I would have bought another Ford CAR had one been available without it being orphaned by idiotic Ford management; thankfully I replaced my Ford with a Hyundai and I won’t go back.

      • 0 avatar
        cprescott

        I’ve owned nothing but Fords as an adult over the past 39 years. My last Ford I bought new and it was remarkably durable for 22 years. I would have bought another Ford CAR had one been available without it being orphaned by idiotic Ford management; thankfully I replaced my Ford with a Hyundai and I won’t go back.

    • 0 avatar
      gtem

      Coming out of a rusty old Taurus with broken rear springs that drags itself into the dealership and signing up for a 96 month lease on an Ecosport… I can see it.

      • 0 avatar
        N8iveVA

        I was just having a conversation where I had the position where the average car buyer isn’t an enthusiast. They don’t test drive 5 cars. Many are people stepping out of a 10 year old car and looking at something that catches their eye while on a budget. When going from an average 10 year old car anything seems nice and modern. Yes even bottom feeders like the Ecosport, Trax, or Versa.

      • 0 avatar
        Art Vandelay

        With the depreciation curve on an Ecosport I would love to see the 96 month residual. Remember with a lease you are paying the depreciation (sometimes subsidized a bit) I don’t know of a bank that could make those numbers work. a 96 month loan now, they will do that all day long.

  • avatar

    All the Hackett-man and Barra know how to do is cut products. They are not really about rebuilding companies.

  • avatar
    thejohnnycanuck

    I thought junk status was the result of them getting into bed with Volkswagen.

  • avatar
    SCE to AUX

    Mobility – the way of the future. Show me the blueprints!

  • avatar
    Rich Fitzwell

    Moody’s is laughable, they completely missed the GFC (Great Financial Crisis)of 2008 not to mention Enron and GE.

  • avatar
    thegamper

    I have to admit that reading an article or two on it, I come away with the impression that the downgrade is very much based on a worst case scenario that has not materialized not on today’s fundamentals. Seems sort of unfair to be honest. Almost like a publicity grab. They say good things about cash on hand and revenue in the same paragraph noting the challenges. Every automaker is facing these challenges.

    • 0 avatar
      Scoutdude

      Yeah it seems a bit unfair and contradictory. Fact is they do have new product in key high margin vehicles for 2020 with the new Escape/Corsair and Explorer/Aviator and the Hybrid F-150 is due as a 2020 model year, though apparently a later introduction. Those should provide a good profit potential.

    • 0 avatar

      Not a fan of ratings agencies, but they are correct Ford’s margins compared to it’s competitors (on a global basis I believe there are closer in NA) would mean it’s stretching if there is a big downturn.

  • avatar
    Jeff S

    Let me answer that question that those $14,000 Fiesta buyers will be going to a Kia or Hyundai. Ford either doesn’t care or hasn’t learned. Prior generation Ford Ranger buyers didn’t all go to F-150s or Fiestas and Focus–many went to Tacomas.

  • avatar
    Rich Fitzwell

    On the other hand why should I defend Ford?

    Jimmy Boy the CEO at Ford just signed a letter saying he was putting everything else in front of his shareholders. Mary at GM signed it too.

    https://opportunity.businessroundtable.org/ourcommitment/

    Thanks for telling me and dropping the pretense- I will dump F and GM and buy HMC.

  • avatar

    What does Ford expect when they cancel nearly 20% of their vehicles. There are still a few people that want to buy cars. Hackett will eventually have to be fired. They might as well do it now before things get even worse. Bill Ford is going to face the fact he made a grave error hiring Mr. Hackett.

  • avatar
    Jeff S

    I doubt 1 and 4 of those buyers will buy an Ecosport when there are so many better subcompact and compact crossovers on the market. Just assuming that all those Fiesta buyers are loyal to Ford is not enough. If someone really wants a car then they will buy a car regardless of brand. If someone really wants a midsize pickup they will buy a midsize pickup regardless if it is a Ford. A Ford made in India is no more desirable than a Kia or Hyundai. One might argue that it is no more desirable than a Chinese made vehicle.

    • 0 avatar
      Scoutdude

      Well they may not be Fiesta owners but about 30k Ecosports found homes in the first half of 2019, Meanwhile the Fiesta’s best year was just over 70k way back in 2013 a very different time for sales of cars in general and small cars particularly. Fact is Ford would have been better off if they never even brought the Fiesta to the US. Margins are too small and there just isn’t much volume to be had in that segment.

      • 0 avatar
        28-Cars-Later

        Things were very different during the 08-11ish product planning cycle, they really didn’t know what the landscape would look like by 2013, let alone predict oil’s fall in 2014. Remember the condition FCA produce a 40mpg car in order to get more ownership from fedgov? Personally I think they were planning for the potential of peak oil after 2010 which has been kicked down the road due to fracking.

        “As provided in its June 10, 2009 Operating Agreement, Chrysler Group issued a letter to the U.S. Department of the Treasury stating that the Company has irrevocably committed to begin assembly of a vehicle with an unadjusted combined fuel economy of at least 40 mpg in commercial quantities in a production facility located in the United States. As a result, Fiat’s ownership interest increased automatically by 5 percent under the terms of the Operating Agreement.”

        https://media.fcanorthamerica.com/newsrelease.do?id=11871&mid=

        • 0 avatar
          Scoutdude

          Yes I remember that Fiat agreed to produce the turn known as the Dart to get given the rest of the company. Not sure what that has to do with Ford’s poor decision to bring the Fiesta over.

          A simple look at history would show that small car popularity falls quickly after the initial shock of a big run up in gas prices.

          So they should have known that they would only be able to sell it at any significant margin or volume for 2-3 years at best.

  • avatar
    Robbie

    Ford’s single profit source is US pickups. The rest of their product is not profitable. Your valuation of Ford depends completely on whether you believe that the current Republican “the more gas it uses and the more pollution it causes, the better” regulatory framework in the US continues.

    • 0 avatar
      Peter Gazis

      Robbie

      I think you meant to say: Ford’s sources of profit are Pickup truck, Van Large & midsized SUV sales in the U.S. and Canada.
      In Europe, Ford makes money on it’s commercial vehicle sales (Vans mostly)
      In Australia & South East Asia, Ford makes money selling Rangers.
      Ford also sells a large number of Mustangs & Escapes. They probably make money on those as well

      Take all that away, and Ford becomes a very small company

  • avatar

    Reading this article it suddenly dawned on me that Bill Ford must invite Bob Nardelli to take over as CEO to right-size company and to get rid of excessive workforce and product.fitness upon Ford’s operations. He is good at it.

  • avatar
    Jeff S

    @Rich Fitzwell–Agree I am less brand loyal and Hyundai and Kia seem to be more interested in providing more affordable and desirable vehicles. If GM and Ford disappeared or became foreign owned I would still buy a vehicle from another manufacturer. Truck owners are the most loyal to their brands and that is where Ford’s strength is. Hackett and Barra are more interested in the short term future of their companies than the long term. I don’t fault either so much for cutting some of the autos as much as they have no long term vision.

  • avatar
    Superdessucke

    And all of this is before the market turns down and away from expensive high profit trucks and CUVs. I’m tired of complaining about this. The best and only thing I can do is keep my money in my pocket. So I am okay with Ford’s direction, so long as my tax dollars are not going to be eventually used to bail them out.

    • 0 avatar
      Robbie

      But do you envision the market ever turning away from expensive high profit trucks and CUVs? I just do not see it happen; the cultural divide in the US is such that pickups will always sell, and I also do not see the US ever enacting rest of the world style gas and environment regulation.

      • 0 avatar
        Superdessucke

        Yes I do, though it won’t be because the market gets tired of them and switches to small brown manual wagons. Trump isn’t going to be in office forever and it’s only a matter of time before young voters elect a “Democratic Socialist” as President. I think that’ll have a very negative and drastic impact on the economy once it comes to pass, and it will. If not in 2020 it won’t be long after.

        A notable percentage of the younger generation works the “gig” economy and isn’t doing as well as its parents did. I cannot see the market for $75k deluxe crew cab pick ups and $50k family haulers sustaining itself at present pace.

        Many are also moving into large cities, where cars, certainly huge trucks, are not necessary. And how long before these broke Democratic-run cities start putting seriously punitive measures on motor vehicles generally and large vehicles in particular? I’m guessing not long.

        A cornerstone of the progressive platform is not only anti-consumerism, but is built on the idea that we’ll all be under water by 2030. This view is moving from the fringes into the mainstream. That too will impact the types of vehicles desired and offered.

        • 0 avatar
          JimZ

          ” “Democratic Socialist” as President. I think that’ll have a very negative and drastic impact on the economy once it comes to pass,”

          except the last time the economy took a nosedive, it wasn’t a “Democratic Socialist” in charge. God damn you people love to rewrite history.

          • 0 avatar
            Superdessucke

            @Jimzzzzz – We’ve thankfully never had a socialist president. But it’ll be just like Denmark right? LOL! And read my post. I didn’t say wagons were coming back.

    • 0 avatar
      JimZ

      “And all of this is before the market turns down and away from expensive high profit trucks and CUVs. ”

      oh blah blah blah. How long have enthusiasts been pounding the “wagons are coming back” drum? 30 years? Still waiting for that one.

    • 0 avatar
      joeaverage

      Just buy off-lease vehicles. You get the new-ish vehicle, technology updates over your last vehicle and there is a big discount over new prices.

      No reason to spend $35K+ on a mid-range crossover vehicle right now.

      Save even more by buying an unpopular off-lease vehicle aka sedan.

  • avatar
    DeadWeight

    Ford has 83 BILLION USD in actual, real debt + an incompetent, reckless, prone-to-flights-of-fancy CEO who is going to burn the rest of the Ford/Lincoln down in short order, with more flights of fancy, more onerous and odious debt, all set against the backdrop of rapidly slowing sales in 90% of the world.

    Ford is ripe for a tremendous collapse.

    GM will soon follow.

    Ford should eliminate almost all models and rename dealerships to “The F Series Store.”

    Hackett and Barra are among the worst automotive CEOs of the last 30 years.

    • 0 avatar

      On the F series store thing. My local Chevy outlet was owned by one family for decades. They always were very car heavy but with a few trucks around. A while back they moved into new digs across town and all of the sudden the lot was 95% Silverado. Turns out they sold to another auto group with Honda points in the same town. Seems they bought the dealership just to have access to fullsize truck sales.

  • avatar
    dividebytube

    Related – on the way in to work today I was behind a brand new Edge ST. It made me a little angry thinking how much more I would prefer the ol’ Focus ST over the “CUV” version. ::sigh::

    • 0 avatar
      Superdessucke

      True, but the bright side is you also have 30-35k in your pocket that you otherwise might not if there was a new Focus ST. If you try to look at it positively, it’s freeing. There are other things to spend money on, or save money on!

  • avatar
    EBFlex

    Hackett is, in many ways, Alan Mulally 2.0.

    The cancer is bad but in a slightly different form. The man has no business running a car company. Quality is nonexistent, products are taking forever to go from design to production, and all Hackett wants to do is focus on “mobility”.

    The Ranger is a perfect example that encompasses many of Hacketts shortsightedness.

    Ford has nothing going for it other than building low quality crap. The only good thing they’ve done in the past 8 years or so is design a new V8 (7.3). But when your bread and butter product that pays all the bills and is the ONLY product you give a damn about is so massively eclipsed by the so called “weakest” big 3 truck manufacturers, you have a problem. Ram is making Ford scramble when it comes to trucks.

    Ford, a truck company, has lost their way and their credit rating reflects that.

    • 0 avatar
      cprescott

      Your post proves you are not informed in the least. Mulally saved Ford. Hackett is ruining Ford. I suggest that you either cease posting or start educating yourself. I seriously doubt you have the mental ability to do just that.

      • 0 avatar
        EBFlex

        “Profits now, recalls later” was not “saving” Ford.

        Mulally was a cancer. Fraudulent fuel economy ratings, Powershift transmissions, Ecobust, etc. Quality was something he was very disinterested in. And it continues with Hackjob.

        Like Mulally, Hackjob just wants to cut his way to profitability. That’s not sustainable.

        • 0 avatar
          HotPotato

          My 2013 Ford was in for recalls and TSBs so often that they couldn’t get around to other needed repairs (including fixing cosmetic damage they created when incompetently executing said recalls and TSBs). I guess I should have guessed, given that I was driving a barely-revised-for-America European Ford model, that I could expect a VW experience: love to drive it, hate to own it.

  • avatar
    Jeff S

    Eventually the big crew cab pickups and larger suvs and crossovers will not be the hottest selling vehicles. Now they are the most profitable and manufacturers are basking in the profitability of these vehicles. I don’t think these vehicles will disappear but they will eventually wane in popularity. Those automakers that can adapt quickly to market changes are the ones that will survive in the long term. I don’t believe GM and Ford will become defunct more like the next bankruptcy GM will end up like Chrysler in the hands of a foreign entity. As for Ford they might completely become a truck company with a handful of crossovers and suvs. If Ford eventually files for bankruptcy they could be taken out of the hands of the Ford family and be forced into a merger with another manufacturer and/or end up being foreign owned. My opinion is that Hackett and Barra are setting themselves up for a golden parachute and the future of their companies is the least of their concerns.

    • 0 avatar
      JimZ

      “Eventually the big crew cab pickups and larger suvs and crossovers will not be the hottest selling vehicles.”

      perhaps, but you people who think that will bring about profitable small- and medium-sedan/hatchback sales are fooling yourselves.

  • avatar
    stuki

    As long as the music is playing, none of the Big3 will be falling over. Credit driven house (or, sorry “home”) remodeling will let them sell enough half-and-up pimped pickups, and assorted sundry, at Fed subsidized “low” monthlies, to stave off that.

    Once the band quiets down a bit, things start depending on whether Ford can go toe to toe in the ensuing discounting wars, with their alu heavy 150s, and generally greater focus on new-new across the board, than the (proud-to-be) dinosaurs they compete with. None of the three can match the efficiency, as in car-for-the-money, of Asian brands, in smaller cars. That ship sailed several Fed sponsored waves of executive, lawyer, finance yahoo and investor enrichment schemes ago.

    • 0 avatar
      JimZ

      unless you’re privy to those Asian companies’s finances for every vehicle line, you’ve no way of knowing if they’re actually making much if any money on smaller cars. Honda and Toyota probably do since they’re the volume leaders at about 300k/yr, and no one else really even comes close. I think what people need to come to terms with is that the compact and mid-size sedan segments are no longer big enough for everyone to play in. if you can’t sling 3-400k of them a year, it’s hard to make any money on them, and there simply isn’t the demand for every player to ship 3-400k/yr. So the ones getting out are getting out before they p*ss too much money away. Honda and Toyota will own the segment from here on out. I’d expect Hyundai and Kia to de-emphasize it sooner or later; sales of the Sonata and Optima have tanked worse than the Fusions. But that depends on how stubborn they want to be. They’ve already missed the mark badly with Genesis.

  • avatar
    Jeff S

    Agree I don’t see the Big 3 falling over anytime soon, but in the future maybe. I also don’t see them getting back into the car business unless it is to put a badge on an Asian import which might actually be the best alternative. I do believe the cheap credit will eventually come to an end and I question how long can a car loan be extended to keep vehicles affordable and to where the buyer is not under water. Large trucks, crossovers, and suvs will eventually plateau not so much that people will not want them but that they will reach a point where most will not be able to afford them. Also eventually we will experience another recession and at some point energy prices will rise not because of oil supplies but lack of refinery capacity and more regulation and fuel taxes being raised by states looking for more sources of funding to build and repair roads and bridges. Economic cycles and consumer preferences and priorities at some point will change as they always have in the past but for now and the foreseeable future large vehicle sales whether they be trucks, suvs, and crossovers look good. Everything runs in cycles.

  • avatar

    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.

  • avatar
    Jeff S

    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.

    • 0 avatar
      HotPotato

      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.


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