DBRS Confirms Ford Motor Company at BBB (low), Trend Remains Stable

DBRS has today confirmed the long-term debt ratings of Ford Motor Company (Ford or the Company) at BBB (low). Concurrently, the short- and long-term debt ratings of Ford Motor Credit Company LLC (Ford Credit) and its subsidiary Ford Credit Canada Limited have been confirmed at R-3 and BBB (low) respectively. The trend on all the ratings is Stable. The confirmation reflects Ford’s solid financial performance over the past four and a half years. Moreover, DBRS notes that Ford’s business profile may be subject to some improvement over the near- to medium-term as the Company appears on track toward strengthening its international operations, although for the time being Ford remains too dependent on North America for earnings generation.

In 2013 through the first nine months of 2014, the Company remained solidly profitable. While earnings this year will likely soften somewhat, this incorporates recall costs in North America (that are not expected by DBRS to be repeated next year at a similar level) and market headwinds in South America and Russia. DBRS notes that while the magnitude of recalls across the industry in recent years is dramatic, this has typically not resulted in any meaningful sales erosion of the affected companies. Moreover, Ford is making progress with respect to recent quality issues that have confronted the Company, with both Ford and Lincoln achieving improved results in recent quality surveys. Ford’s product cadence is also favorable given the imminent launches of new key products, most notably the next generation F150. Finally, the Company continues to benefit from an advantageous cost position, with Ford’s North American operations able to absorb a substantial drop in industry volumes while remaining profitable. Given the above, Ford’s future earnings in North America are expected to remain robust.

Additionally, the Company is making some progress in its international operations. While losses in Europe will persist this year, they are expected to narrow vis-à-vis 2013 with Ford likely achieving at least break-even profitability over the 2015-2016 timeframe. The Company is also growing in Asia-Pacific, namely China, where Ford’s sales and market share have attained record levels. Moreover, volumes and profitability are projected to increase further in line with ongoing industry growth amid Ford’s higher regional capacity. While the progresses in Asia-Pacific and Europe are offset by losses in South America, DBRS notes that these are not specific to Ford, with the results of essentially all automotive manufacturers trending substantially weaker in that market given major headwinds in the region.

Should the Company continue to progress in its international operations, (i.e., ongoing narrowing of European losses while solidifying its market position in China), this could result in positive rating implications as Ford’s financial profile already effectively exceeds the ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Automotive Manufacturing Industry, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union