S&P cuts Ford’s debt rating, citing weak profits

Washington, Oct 26 (AFP/APP): Ratings agency S&P on Friday knocked down Ford’s debt rating to BBB-, a notch above junk, saying falling sales and rising costs were eroding the US auto giant’s margins.

The move follows last month’s similar downgrade by Moody’s, which cut Ford to junk status, and comes two days after the company cut its profit outlook, citing weaker sales in China.

“We anticipate the company’s global restructuring and cost-reduction efforts to face high execution risks amid heightened geopolitical risk and weakening consumer sentiment in many of its largest markets,” S&P said in a statement.

The outlook was stable for Ford’s debt rating in the coming months, however.

As the world’s auto market shifts to new technologies, demand weakens and US customers migrate to larger trucks, Ford has embarked on an ambitious restructuring.

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The “redesign” involved phasing out low-selling sedans in the United States, cutting thousands of jobs in Europe and shifting to an “asset light” business model that involved ending production at a Brazil factory.

The company on Wednesday reported a 57 percent plunge in third-quarter earnings from the year-ago period, while revenues fell a more modest 1.8 percent to $37 billion.

“Over the next four years, we expect Ford will incur restructuring charges of up to $11 billion (with cash-related effects of $7 billion), which will focus on its operations outside North America,” S&P said Friday.

Outside the restructuring, S&P said it expects Ford’s profits to improve and liquidity should remain strong, meaning despite Friday’s downgrade the ratings outlook is stable.

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