Standard & Poor raised the credit rating of Ford to BB+ from BB–

Article by Christian Andrei, on October 22, 2011

Ford Motor Co.’s new four-year labor contract has finally been ratified and while it is getting nearer to investment grade, it hasn’t reached that level yet. The corporate credit rating on Ford and Ford Motor Credit Co. has been raised by Standard & Poor's to BB+ from BB–. It’s still a junk rating but it is considered the highest level of speculative grade. BBB– is the lowest level of investment grade, a notch higher than BB+.

S&P distributed a press release, stating that Ford's new four-year labor contract with the UAW “will allow for continued profitability and cash generation in North America.”

Backed by the strong performance in North America, Ford has a two-year track record of profits and cash flow generation in its global automotive operations. It’s not yet known if Moody’s will revise its rating of Ford too. Last Thursday, Ford executives said that the new contract is estimated to increase its labor costs less than 1% each year.

Ford hopes to achieve boosted efficiencies from its North American assembly plants. In its statement, Ford said that it’s “pleased with these positive steps.” Ford admitted that its ratings depend on the credit rating agencies. S&P credit analyst Robert Schulz said that Ford’s cost base in North America has stabilized its prospects for generating free cash flow and profits in its automotive manufacturing business.

Based in Dearborn, Michigan, the Ford Motor Company is a multinational carmaker founded by Henry Ford and incorporated on June 16, 1903. Controlled by the Ford family who enjoys a minority ownership, Ford is listed on the New York Stock Exchange.

Ford is involved in manufacturing and sales of autos and commercial vehicles under the Ford brand as well as luxury cars under the Lincoln brand. Ford nearly succumbed to bankruptcy during the financial crisis at the turn of the 21st century, but has since been profitable. Using 2010 vehicle sales as basis, Ford is the #2 carmaker in the United States next to GM, and is #5 both in Europe and the world.

Ford is also the #8 among American-based companies in the 2010 Fortune 500 list, with $118.3 billion in global revenues in 2009. In 2008, Ford manufactured around 5.53 million vehicles at around 90 plants and facilities around the world and employed about 213,000 people. Ford is the owner of Australian performance car maker FPV and Brazilian SUV manufacturer Troller.

Its holdings include those in Mazda (2.1 percent), Aston Martin (eight percent) and Jiangling (49 percent). The US carmaker has also entered into a number of joint ventures like Changan Ford Mazda (China), Ford Sollers (Russia), Ford Lio Ho (Taiwan), AutoAlliance Thailand (Thailand) and Ford Otosan (Turkey). Ford used to own Jaguar (from 1989) and Land Rover (from 2000), which were then sold to Tata Motors in March 2008.

Ford also used to own Volvo from 1999 to 2010. Ford decided in 2011 to discontinue the Mercury brand, which carried entry-level luxury cars sold in the US, Canada, Mexico, and the Middle East. Ford has been credited for pioneering the use of assembly lines for large-scale cars manufacturing as well as large-scale workforce management, employing engineered manufacturing sequences in the process. By 1914, these large-scale methods were known globally as Fordism.

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