DBRS Confirms Ford Motor Company at BBB (low), Trend Changed to Positive from Stable

DBRS Limited (DBRS) has today confirmed the long-term debt ratings of Ford Motor Company (Ford or the Company) at BBB (low). Concurrently, the long- and short-term debt ratings of Ford Motor Credit Company LLC have been confirmed at BBB (low) and R-3, respectively. (With respect to Ford Credit Canada Limited, the long-term debt rating has been confirmed at BBB (low) and the Commercial Paper rating has been discontinued, with DBRS assigning a Short-Term Debt rating of R-3.) The trend on all the ratings has been changed to Positive from Stable. The rating actions reflect Ford’s solid financial risk profile and consistent profit and cash flow generation over the past five years. DBRS expects the Company’s earnings momentum to persist going forward given its strong product cadence (with the revised F150 performing very well) amid material improvements in product quality. Moreover, while Ford remains considerably dependent on North America for earnings generation, the Company’s business profile may be subject to some improvement as it appears on track toward strengthening its international operations. DBRS notes in particular that the Company has made meaningful progress in its Asia Pacific segment, primarily consisting of China, where Ford’s presence has markedly grown with the region (including equity income from Ford’s China joint venture (JV) partners) now contributing meaningfully to earnings. Moreover, while losses in Europe persist, they are progressively narrowing.

Subsequent to somewhat softer (albeit still sound) profitability in in the latter half of 2014 through early 2015, Ford’s financial performance rebounded strongly in Q2 2015 with the Company progressively ramping up supply of its new flagship F150. DBRS expects Ford’s North American earnings to remain robust going forward, incorporating full availability of the F150 and Ford’s overall strong product cadence amid local industry conditions that (despite having been positive for several consecutive years) appear likely to remain favourable. In other regions, despite being a relatively late entrant, Ford’s market share in China is progressively increasing and approaching 5%. Moreover, Asia Pacific is contributing meaningfully to automotive earnings as the segment’s operating margin last year exceeded 5% and equity income from Chinese JVs totalled $1.3 billion. DBRS concedes that Ford still faces challenges in its international operations, namely in Europe and in South America. However, the Company’s South American results are significantly a function of substantial local headwinds that have adversely affected all automotive manufacturers present in the region. Regarding Europe, losses will persist this year but likely narrow vis-à-vis 2014. Moreover, Ford’s European share is holding constant, with new products (notably in the commercial vehicles segment) resulting in firmer pricing; such progresses, amid projected moderate industry growth, are likely to result in the Company reverting to modest profitability in the region next year.

Ford’s financial risk profile remains robust, with the automotive operations maintaining a sizeable net cash position and associated credit metrics readily exceeding the current ratings. Upon the Company’s collective international operations (including equity income from the Company’s Chinese JVs) attaining at least breakeven performance over a trailing 12-month period, DBRS would likely upgrade the ratings. Finally, while the Company is currently in negotiations with the United Auto Workers Union for a new four-year collective bargaining agreement, DBRS does not expect such developments to result in a rating action, although a particularly adverse outcome (which, among others, would include a prolonged strike action) could potentially trigger an event-driven review of ratings.

Notes:
All figures are in US dollars unless otherwise noted.

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

The applicable methodologies are Rating Companies in the Automotive Manufacturing Industry and Global Methodology for Rating Finance Companies, which can be found on our website under Methodologies.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.