Ford’s credit fell to a “Baa3” rating this week — just a single notch above what investors would classify as junk.
The company has been chugging along on an expensive $11B turnaround plan. But as global sales continue to fall, Ford’s reorganization efforts could run out of gas.
Ford’s global business operations are in free fall: Chinese sales fell from $70m profit last year to a $633m loss this year, with an additional $750m in losses in South America and bleak prospects in post-Brexit Europe.
Even worse, Moody’s, the credit rating agency that downgraded Ford, said that, “absent clear progress,” it may have to downgrade the automaker again in the near future.
Ford hired a new CEO, Jim Hackett, 15 months ago to engineer the company’s turnaround. To keep his new company out of the junkyard, Hackett launched an $11B initiative to improve “operational fitness” over the next 3 to 5 years.
With $25B available in cash, Ford has maintained a healthy balance sheet by scaling down on underperforming products (sedans). But Ford’s near-junk credit rating makes it hard for the company to keep growing.