Ford Motor Co. this week got a vote of no confidence, with its debt labeled for the first time in years as “junk.”
Moody’s Investors Service lowered the boom on Sept. 9. It issued a statement where it assigned a rating of Ba1. That made Ford’s debt non-investment grade, more popularly known as junk.
Two other companies, S&P and Fitch, have rated Ford debt at investment-grade levels, according to Bloomberg. So junk isn’t a consensus. But the Moody’s action provided a flashback of unpleasant times at Ford.
The Dearborn, Mich.-based automaker’s debt was rated junk in the 2000s as it revamped operations and weathered a massive recession at the end of that decade. In 2006, the company put up its assets as collateral for borrowings that enabled it to avoid U.S. government bailouts unlike General Motors and the former Chrysler. Ford’s debt became investment grade again in 2012 as the company and auto industry recovered.
Ford now is undergoing a new restructuring effort. Moody’s said it won’t be easy and it won’t be quick.
The junk rating reflects “the considerable operating and market challenges facing Ford, and the weak earnings and cash generation likely as the company pursues a lengthy and costly restructuring plan,” Moody’s said in its statement.
“The restructuring is expected to extend for several years with $11 billion in charges, and a cash cost of approximately $7 billion,” Moody’s added. “The scope of this restructuring plan is unprecedently large and challenging. It will extend at least into 2023.”
Among Ford’s problems is it relies on its home North American market for profit. Operations in Europe, South America and China are financially challenged. Europe is a tough market in the best of times. Rival General Motors Co. got out of it in 2017 after years of losses.
In North America, Ford’s main profit generator is its F-Series line of pickups. The company is ending production of most of its car models, with plans to emphasize SUVs and crossovers.
What’s more, Moody’s said, Ford has “a weak position” when it comes to cash flow and profit. The ratings company said Ford is likely to remain week through 2021.
Ford’s current CEO, Jim Hackett, 64, was installed in 2017 after his predecessor, Mark Fields, was deposed. Hackett spent much of his career at office furniture Steelcase. He retired from there and joined Ford’s board in 2013. He shifted to heading Ford Smart Mobility before being tapped for the top job.
Hackett has sought to project that Ford is prepared for a future that includes self-driving and electric vehicles. The company last year acquired Michigan Central Station in Detroit’s Corktown neighborhood, intending to make it the centerpiece of a corporate campus devoted to developing autonomous vehicles.
The problem is that future is uncertain while the present is troublesome. Vehicle sales are slowing in Ford’s home market. Management has to juggle fixing operations outside North America while developing self-driving and electric vehicles for the future. Ford entered into an alliance with Volkswagen AG to develop some models and share some costs but it remains to be seen how well that works out. It was expanded last month to include electric vehicles.
To be sure, Ford is better off than it was a decade ago. It’s profitable and has cash. Moody’s vote of no confidence, though, is another indicator of the major challenges Ford faces.