Ford Run Over By S&P (F, GM)

Standard & Poor’s has come out with another timely research call today, and while shares are still up about 5% they are off of intra-day highs..  The ratings agency has lowered its ratings on Ford Motor Co. (NYSE: F) and its Ford Motor Credit Co. and related entities.  The corporate credit ratings were cut to ‘CCC+’ from ‘B-‘…

The good news is that S&P removed them from CreditWatch (onnegative implications since Oct. 9, 2008). S&P also cut thecounterparty credit rating on FCE Bank PLC, Ford Credit’s European bankto ‘B-‘ from ‘B’.  The rating outlook on all entities is negative.  Italso said it could lower ratings further.

While more details are given (partial below), S&P has one ominous part in its note:
"…our concern is that the company may not have the liquidity to survive this economic downturn."

S&P did say it still expects the $10.7 billion revolving creditfacility to remain undrawn through the end of 2008, but trends couldcause possibly significant draws by the end of 2009.  As far as S&P’s thought on General Motors (NYSE: GM) and Chrysler,it believes Ford Credit has been less constrained recently in itsability to provide financing for Ford customers and faces a lessimminent danger of falling below necessary capital levels.    

S&P also noted the amounts of cash used and expectation, but it didnote that Ford and the other automakers may ultimatelyreceive loans or other financial support from the U.S. government andexpects some of the $25 billion of previously appropriated governmentloan funding to begin arriving early in 2009 or sooner.

S&P now expects U.S. light-vehicle sales of about 13.3 millionunits or less for the year, which would be the least in 15 years.  Italso expects sales to fall further in 2009, to about 12.3 million units.

The actual report is far longer, but there is nothing really new in it other than the formal cut.  Ford and GM are both at-risk businesses that are worthy of going-concern notices.  The economy is going to get worse before it gets better.  Unfortunately, the pain is far from over.

Jon C. Ogg
November 20, 2008