Moody’s may upgrade Ford credit rating after UAW accord

Article by Christian A., on October 7, 2011

Moody's Investors Service is studying the credit ratings of Ford Motor Co. for a potential upgrade after the car maker entered a provisional labor contract with the UAW. The ratings under evaluation include the automaker's corporate family rating and the likelihood of default rating at Ba2, which is two levels below investment grade.

In a statement, Moody's explained that its initial assessment of the planned UAW deal is that it should allow Ford to sustain its fixed cost position, operating flexibility, liquidity position and breakeven point near current levels.

Moody's further stated that if the final review of the provisions in the contract is consistent with the initial assessment, and if the contract is ratified, the business position and credit metrics of Ford would be suitable to achieve a higher rating. Moody's had also disclosed that it is studying the rating of the company's finance unit, Ford Motor Credit, which obtained Ba2 rating.

According to Bruce Clark, who is senior vice president with Moody's, Ford has built a much stronger financial profile and operating model in the past year. He further stated that they want to determine if it can keep this position when market conditions become more difficult, says Autonews.

Moody's explained that any endeavor depends on Ford's 41,000 UAW members signing the tentative agreement. Voting will end on October 16, 2011. The arrangement includes no increases for senior employees and bonus payments amassing $10,000 this year. Entry-level employees, who now earn around 50 percent of the $28 wage of senior workers, gain increases that will place their hourly rate up to $19.28 by 2015, according to the UAW.

Ford will also give out $1,500 payments each year to its UAW workers, replacing cost-of-living adjustments. If the automaker earned $5 billion each year, the employees could get $20,000 in profit-sharing payments as part of the four-year agreement, the UAW explained.

Topics: ford, uaw, united states

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