• Dec 31, 2010
2010 was a banner year for Ford Motor Company. Market share and profits were as good as they've been in years, and there is genuine buzz surrounding the Blue Oval's cars and trucks. Heck, even Ford's stock has been a monumental success. But not all that glitters is gold, as Ford is still mired in junk bond status, which in turn makes it more expensive to borrow money. That makes it more pricey for Ford to offer incentives to customers, and lease terms are less attractive than they would otherwise be.

K.R. Kent, Ford's new executive director of investor relations, is charged with getting Ford out of Junk status. Automotive News reports that Ford has been in junk status since 2005 and is currently four grades below junk status after being upgraded by two levels back in August. Ford CFO Lewis Booth admits that the company still has "a lot of steps to go before we get to investment grade." Making the matter more urgent for Ford is the fact that Ally Financial, the finance arm for General Motors and Chrysler, became a bank holding company in the second quarter of 2009. Since that time, AN says that it has been cheaper for Ally to secure loans than Ford Credit.

We're thinking that Ford has a big job in the year ahead, and getting out of junk status will likely take improved auto sales and continued quarterly profits. Booth says Ford will reach its junk-free goal by showing the investment community "authoritative and highly credible insight into our automotive business and Ford Credit."

[Source: Automotive News – sub. req.]




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  • 54 Comments
      • 4 Years Ago
      Why continue to spew misinformed opinions and stupid comments on people you obviously don't know?

      Of all the Americans I know, maybe 1% have ever smoked pot or done any type of drug at all. Just because you hang out with the dredge of society doesn't mean that's how we all are.

      Ford vehicles are also tops in many categories these days so please pull your head out of the cloud of pot smoke boyee.
      • 4 Years Ago
      "But not all that glitters is gold, as Ford is still mired in junk bond status, which in turn makes it more expensive to borrow money. That makes it more pricey for Ford to offer incentives to customers, and lease terms are less attractive than they would otherwise be."

      The cost of Ford's debt would only affect the cost of incentives to Ford customers if Ford was taking a loss on the sale of the vehicle. Ford corporate debt has nothing to do with cost of debt for consumers who are purchasing Ford vehicles.
        • 4 Years Ago
        If Ford is going to to offer credit terms to its customers (instead of having the customers finance through a separate entity like a bank or credit union), that cash has to come from somewhere. So when Honda has a 0.9% financing offer, it's actually Honda putting up the cash. Yes, it's to pay itself, but it needs the money to keep the lights on, pay workers, pay for materials, etc.

        So what a major car company will do is borrow money, and then turn around and offer better financing rates to it's customers. Ally, as a "traditional bank" can borrow money either from the federal government (at rates close to 0) or from banking customers through things like savings accounts (rates close to 1%) or CDs (rates closer to 1.5% to 2%). That way they can turn around and offer GM customers 0% financing, for example.

        Ford is screwed because a) they don't have a "bank" that can borrow money from the government/American people, and b) their bonds are in junk status so they have to pay far more in interest to borrow money in the corporate world. For a Ford bond that expires in 2015 (so the length of a 60mo car loan), Ford would have to pay 5.5% interest on that debt. That's far higher than the 0-1.5% that Ally can borrow money at, and so Ford can't really offer financing terms below that without losing money.

        Higher financing terms means a higher expense for the customers, which leads to fewer customers. Hope this clears it up.
        • 4 Years Ago
        I think GM and Chrysler bonds are junk and not Ford. As a matter of fact I much rather purchase Ford bonds. GM & Chrysler are an example of competent coming in to help the incompetent and then papering over fundamental problems with some accounting tricks courtesy of BK laws.

        Ford is minding its matters and doing what it needs to do to survive as would any company in free-market. GM & Chrysler should have never been rescued. Those baffoons are now benefiting and Ford is fighting tooth and nail for every inch. You call this fair?
      • 4 Years Ago
      I guess people dont know that when Ford financed every one of their assets in 2006 that the economy was healthy and banks would lend money. GM and Chrysler didn't have that luxury and I say luxury because being a "bankrupt" entity is demoralizing as well at detrimental to the overall appearance to the company. GM and Chrysler didn't want bankruptcy but they didn't really have a choice. Could they have made better choices prior to getting into the situation they did? Of course...but what happened happened...and that can't be undone. I am a fan of GM, Ford has nothing to be ashamed of and they have done very well with their products and innovations. FYI the Explorer gets 7 MPG less than the Equinox...not slamming it but just saying. I am not bashing Ford here...just making sure everyone knows the level field isn't so level.
      • 4 Years Ago
      I called this one. Love you Ford, but that false pride will eventually bite you in the behind. Ford let themselves be bullied by public opinion, now they have a tougher road to hoe.

      They won the adoration of a fickle public, their gains will be short lived, the "fans" will move on, and they have to live with the burden. I wish them well, but they are going to be wrestling with issues like this for years to come, when they could have hit the reset button last year.

      No whining about GM stiffing investors. Investors (me included) knew the rules before they got into the investment game. Their worst fears were realized, suck it up and get on with your life. I lost money too, being bitter is only going get me an ulcer.
        • 4 Years Ago
        Gloria, The government did not play favorites, Ford could have taken the tounge lashing and landed on soft ground, or let PRIDE get the better of them and end up where now.

        They chose the latter.
        • 4 Years Ago
        MikeW: In a capitalist environment, MORALITY is usually the first casualty. You selectively invoke ethics and morals.

        Business ethics? You folks have no issue with the underhanded, unethical way that business is done on Wall St. and you question my ethics?

        Ahh!! but when the government enact laws that protect the poor and middle class from these corporate thieves, it is frowned upon, as being anti business. Example: The new laws regulating the Credit Card industry. If the only way for these banks & CC companies to be profitable, is to rape and pillage the public, I have no problem with seeing some of them go under.

        BTW: The net result of Ford taking the highroad during the auto-bailouts, is that now it is costing them more on their loans, due to the fact that they are carrying so much debt.
        • 4 Years Ago
        If it wasn't for the Ford family, Ford may have went along with GM and Chrysler. Think about it, GM and Chrysler got a free ride out of debt thanks to tax payer money and are now at a huge advantage. How sweet of a deal was that? Our short attention span society may think highly of Ford and lowly of GM and Chrysler today, but they'll soon forget about it and move on.

        The biggest thing holding them back was the power of the Ford family. The Ford family still calls the shots in Dearborn, they would rather risk Ford going belly up than give up their control.
        • 4 Years Ago
        Thank you Allen, in my second answer, I gave all of you an out. Ford has all the same problems as GM did, went to the "Hill" looking for exactly for the same deal that GM got, but was talked out of going through with it. Now they have to live with that decision.
        • 4 Years Ago
        Do you want the moral answer or the fiscally prudent answer?
        • 4 Years Ago
        So...it was a mistake to avoid bankruptcy? I don't follow...
        • 4 Years Ago
        Whenever someone makes a statement as stupid as this, I cannot be silent.

        Please explain to someone, how Ford could have declared BK. Please explain how a BK would be approved, for ANYONE who has alot of money in the bank, and is paying all of their bills.

        When GM and Chrysler went BK, they were not viable companies. The only way the lights were staying on, is due to give-aways from Bush and Obama. Meanwhile, Ford was paying all of their bills and prospering. They were more than viable, they were terrifically profitable.

        You want to know why GM can borrow money more cheaply than Ford, just look at our current administration. See, both GM and Ford applied to become a savings bank, which would give them access to cheaper money. GMAC did not meet the requirements, yet they were allowed to become a savings bank, illegally. Fords application was just never even given consideration.

        In other words, the government played favorites, and tried to pick and choose who should prosper, and who shouldn't.
        • 4 Years Ago
        Ever heard of corporate citizenship or responsibility? There were many, many companies losing money in 2009, this doesn't give them all the right to file for bankruptcy and hit the "reset" button. Those that were smart/able had lines of credit in place to make it through tough times.

        The way Ford's been moving, it will have it's loans paid off soon enough and it won't need to lean on the federal govenment/taxpayers nor default to it's creditors to do so. It also was never required to be sold off to a foreign company or shuffle it's management as directed by the president either.

        It was able to keep it's newly placed leadership in it's place which is turning out to be a good thing. GM could have had God himself at the helm when they asked for the government loans and Obama would have told them they needed to "retire" him. Same would have held true for Mullaly if Ford had taken loans from the govenment. It was political gesturing at it's best (not that GM's management was all that effective as of late).

        Your business ethics are ridiculous.
      • 4 Years Ago

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      • 4 Years Ago
      My 2006 Ford E150 commercial van is doing just fine with nearly 200,000 trouble free miles. My 1996 E-150 has nearly 500,000 miles, in which neither the 4.6 V8 nor the C6 tranny has ever been touched! And we still use it....
      • 4 Years Ago
      All the best,Ford.
      • 4 Years Ago
      Ford needs one thing and one thing only - do better in China.

      They are OK in North America, Europe and improving in some emerging markets like Brazil and India.

      Improve in China (where GM is doing much better) and even higher profits will roll in.

      Then it is on to establishing a premium brand (not sure Lincoln is it), moving more production away from UAW land, and other such fine tuning.

      Chrysler's product is still broken. GM still has too many brands - chevrolet, buick, GMC, caddy, Opel, Vauxhall, etc and unproven management. It seems like their new CEO is prone to make a fool of himself with stupid pronouncements. I'm betting on him not being there long.
      • 4 Years Ago
      That would be like say that all Jamaicans are pot smoking rastafarian's.
      • 4 Years Ago
      If the economy can actually move up enough this year, Ford could profit enough to pay off the amt needed to exit junk status. They do have a high debt right now, and if the greedy oil speculators and oil nations tank the economy with $100+ oil, Ford may have to wait another year, or 2.
        • 4 Years Ago
        SuperX: "If" is not a sound business plan. This could go either way for them. Word is, the Fiesta is not flying off the lots like they thought it would. We'll see about the new Focus.

        Here is my problem with the current Ford portfolio. All good solid cars, however, aside from the Mustang, Raptor, Edge and the Sportier version of the NEW Focus, they are not much different from Toyota.

        The best business decision that Ford made in the last four years was the Sync deal with Microsoft. That system has sold their cars, or at least got people to look at them. Want proof, just look at the warmed over last gen. Focus. I drove that and the unlovable Cobalt, the Cobalt was better by a mile. Focus sold like crazy after Sync was added.

        If the doomsday predictions at the gas pumps comes to fruition, it would help them sell cars like the Fiesta & Focus, problem is the profit margins on those cars are razor thin. Ford needs to cross their collective fingers, and hope they can continue to sell their more profitable vehicles at current pace or better. That sir, is their best bet.
      • 4 Years Ago
      I only wish I had bought more Ford stock when it was at $2.99. It brought my portfolio back to pre 2007 levels! Of course when it was just over a dollar I was not happy! They have some of the best looking, innovative, and reliable products available and I think they will continue to be successful.
      • 4 Years Ago
      "We're thinking that Ford has a big job in the year ahead, and getting out of junk status will likely take improved auto sales and continued quarterly profits."

      Correction: The way out of junk status has to do with fixing Ford's debt problem. They still have billions of dollars of loans to repay. Then again, the US Government's credit rating hasn't been reduced to junk yet, and they owe trillions.
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