DBRS Confirms Ford Motor Company at BBB, Stable Trend

DBRS Limited (DBRS) has today confirmed the long-term debt ratings of Ford Motor Company (Ford or the Company) at BBB. Concurrently, the short- and long-term debt ratings of Ford Motor Credit Company LLC (Ford Credit) have been confirmed at R-2 (middle) and BBB, respectively. DBRS has also recognized the name change of Ford Credit Canada Limited to Ford Credit Canada Company, to which all current ratings (herein also confirmed at R-2 (middle) and BBB) have been transferred. The trends on all ratings are Stable. The confirmations reflect Ford’s ongoing solid financial performance and strong balance sheet, with credit metrics exceeding levels commensurate with the current ratings. The Company’s business risk profile is also sound, underpinned by Ford’s strong position in its core North American market. However, DBRS notes further that the Company’s business risk assessment remains constrained by Ford’s overdependence on its home market for earnings (notwithstanding some modest progress attained in this regard through recent profit growth in Asia Pacific and Europe).

Ford’s 2016 earnings remained solid despite some softening vis-à-vis 2015 given implemented inventory reductions and cost increases (including higher structural and warranty costs), exacerbated by negative foreign exchange effects. In North America, the Company’s pre-tax margin remained strong at 9.7%, with Ford benefiting meaningfully from the ongoing migration in vehicle sales away from cars and toward utility vehicles and pick-up trucks (where margins are substantially higher vis-à-vis the car segments). In international markets, Ford’s performance in China held essentially firm (amid ongoing pricing pressure) with the Company making material progress in Europe (in line with firmer product mix and improvement in Russia); although, in aggregate, Ford’s international operations still accounted for less than 5% of total automotive pre-tax earnings in 2016.

DBRS notes that Ford (similarly to several other auto manufacturers), is currently undertaking efforts and investments toward the pursuit of numerous emerging business opportunities, including electric vehicles, autonomous driving and mobility services. DBRS observes that it remains somewhat early to reasonably estimate the potential revenues of such businesses, with associated costs in the meanwhile being more than offset by Ford’s sizeable earnings generation. Similarly, the Company’s increasing shareholder distributions and recent automotive debt issuance (of December 2016 and in a total amount of $2.8 billion) remain well absorbed by its strong financial profile, with the automotive operations as of December 31, 2016, having a net cash position of $11.6 billion.

The Stable trends on the ratings incorporate DBRS’s expectation that Ford’s financial performance (despite some slight earnings moderation projected in the forthcoming year in connection with the above-cited investments) will persist at solid levels amid industry conditions that in aggregate remain rather reasonable, notwithstanding uncertainties associated with potential trade policy changes, notably in North America and Europe (in connection with BREXIT).

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.

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

The principal methodologies are Rating Companies in the Automotive Manufacturing Industry and Global Methodology for Rating Finance Companies, which can be found on www.dbrs.com under Methodologies.