Fitch Affirms Ford & Ford Credit IDRs to 'BBB-'; Outlook Stable

  Fitch Affirms Ford & Ford Credit IDRs to 'BBB-'; Outlook Stable

Business Wire

NEW YORK & CHICAGO -- April 22, 2013

Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) for Ford Motor
Company (Ford) and its Ford Motor Credit Company LLC (Ford Credit) captive
finance subsidiary at 'BBB-'. The Rating Outlook for both Ford and Ford Credit
is Stable. A full list of the rating actions taken on Ford and each of its
subsidiaries follows at the end of this release.

KEY RATING DRIVERS

Ford's ratings are supported by the automaker's strong liquidity position,
relatively low leverage, improved North American profitability and positive
free cash flow (excluding voluntary pension contributions). In general, the
company's competitive product portfolio and lower cost structure has put it in
a solid position to withstand the significant cyclical and secular pressures
faced by the global auto industry. Importantly, Ford's ratings are based on
Fitch's projections that the company has sufficient financial flexibility to
maintain an investment-grade credit profile throughout a period of severe
economic stress.

Although Ford's financial position has improved significantly since the last
downturn, the company continues to face numerous risks. Chief among these is
continued uncertainty regarding the durability of global auto demand. Although
worldwide vehicles sales continue to rise, very weak demand in Western Europe
and declining sales growth rates in many emerging markets has slowed the pace
of sales growth over the past three years. The lack of demand in Europe has
led Ford to undertake a significant restructuring program there that will
constitute a material use of cash over the next two years. At the same time,
Ford continues to make substantial cash investments in Asia and Latin America
to strengthen its presence in those developing markets. This heightens the
need for the company to continue performing well in the competitive North
American market, as cash generated in North American will essentially be used
to subsidize the company's overseas activities for the next year or two.

Additional risks to Ford's credit profile include a relatively high absolute
debt level, a large pension deficit, highly competitive industry dynamics and
increasingly stringent global safety and emissions regulations.

Ford's ratings are based, in part, on Fitch's detailed analysis of the impact
that a severe downturn in the automotive market would have on the company's
credit profile. Given Ford's operating leverage, working capital profile, and
capital expenditure needs, Fitch expects Ford would burn a substantial amount
of cash in a downturn scenario. However, Fitch believes the company's
automotive net cash position of $10 billion at year-end 2012, along with other
sources of liquidity, would provide it with the ability to withstand this cash
decline without falling into financial distress. In addition, Ford has
discretion with regards to certain planned cash deployment actions that could
further relieve liquidity pressures in a downturn, such as delaying capital
spending, reducing voluntary pension contributions, and paying down debt only
at maturity (as opposed to making prepayments). Changes in Ford's business
profile over the past several years have also put it in a better position to
face another downturn. The company's break-even sales level has declined as a
result of its restructuring actions over the past several years, and its more
balanced product portfolio has put it in a better position to weather the
likely mix shift to smaller vehicles that would accompany an economic
downturn.

The Western European market continues to be very challenging for mass-market
manufacturers, and Ford's sales in the region declined significantly last
year. In 2012, wholesales in Ford's European segment (including some joint
venture sales) declined 16%, while revenue in the segment fell 21%. Ford's
market share in the region fell 140 basis points to 7.9% as the company
attempted to avoid discounting and, in the fourth quarter, cut production to
reduce dealer inventories. In October 2012, Ford announced several significant
restructuring actions to improve its European cost structure, including the
planned closure of two plants in the U.K. in 2013 and the planned closure of
its assembly plant in Genk, Belgium in 2014. The plant closures will result in
an 18% decline in Ford's installed vehicle assembly capacity in the region and
will generate estimated gross cost savings of $450 million to $500 million
annually. Ford also plans to strengthen its market position by introducing 15
new vehicles in the region by 2017. The combination of market weakness and the
significant restructuring actions will drive heavy losses in Ford's European
segment over the next two years, with Ford currently projecting that it will
incur an approximately $2 billion pre-tax loss in Europe in 2013, slightly
worse than its loss in 2012. By mid-decade, these restructuring actions could
help Ford to earn a pre-tax profit in the region, although this will also
require some improvement in market conditions, as well.

In terms of product, Ford's vehicle lineup has performed relatively well in
the post-recession period, particularly in North America. Ford's light vehicle
market share in the U.S. rose each year between 2008 and 2011, although it
declined somewhat in 2012 as Japanese automakers' sales got back on track
following the 2011 earthquake. Model changeovers and the discontinuation of
the Crown Victoria and Ranger also contributed to the market share decline.
Ford's sales in 2012 were also limited by the company's capacity, with demand
for its vehicles outstripping its ability to produce them. Thus far in 2013,
Ford's market share has risen on the strength of new models, primarily the new
Fusion and Escape. The new models are also expected to support continued net
pricing gains. The upcoming introduction of new full-size pickups from General
Motors Company (GM) will increase the competitive pressure in the full-size
pickup segment, but the fuel efficiency of Ford's F-series trucks,
particularly those with the EcoBoost V-6 engine, should help to support sales
in the face of heavier competition.

Ford's liquidity position strengthened in 2012 as the company increased the
size of its revolving credit facility and modestly grew its cash and
marketable securities balances. Total automotive cash and marketable
securities at year end 2012 was $24 billion, and, including about $9.5 billion
of availability on the company's primary revolver, total liquidity exceeded
debt by over $19 billion. In March 2012, Ford amended and extended its secured
revolving credit facility, increasing the limit and extending most commitments
to November 2015 from November 2013. As a result of the amendment and
extension, Ford now has $9.3 billion in commitments that mature in 2015 and an
additional $307 million that mature in November 2013.

Fitch's calculation of automotive free cash flow (automotive cash from
operations less capital expenditures and dividends) was only $44 million in
2012, down from $5.1 billion in 2011. However, the 2012 figure included $2
billion of discretionary pension contributions. Other factors affecting Ford's
2012 free cash flow included a $1.2 billion year-over-year increase in capital
spending to support the company's products and growth programs and $763
million of dividends resulting from the reestablishment of the company's
dividend in the first quarter of 2012. Cash used for working capital also
increased by $1.8 billion in 2012 compared with the 2011 level.

Automotive free cash flow (as calculated by Fitch) is likely to be negative in
2013, as the company makes $3.4 billion of discretionary contributions to its
pension plans. Also pressuring free cash flow in 2013 will be higher capital
spending, estimated by the company at $7 billion, and increased dividend
payments. In January 2013, Ford doubled the size of its dividend, suggesting
that dividend payments will be about $800 million higher in 2013 than in 2012.
Despite the near-term pressures on Ford's free cash flow, Fitch expects the
company's liquidity to remain relatively strong and financial flexibility to
remain good. Ford has various options to preserve liquidity, if necessary,
including a reduction in the level of voluntary pension contributions.

Ford's automotive EBITDA margin (as calculated by Fitch) declined to 7.0% in
2012 versus 7.4% in 2011 as higher losses in certain markets, particularly
Europe, put downward pressure on the company's profitability. Even with the
margin decline, overall profitability remained relatively strong, however,
driven by higher net pricing and sales growth in North America. The weak
market conditions outside North America, along with negative foreign exchange
effects, also resulted in a 1.3% decline in automotive revenue to $127
billion. The slight decline in revenue and the lower margin led to a decline
in Fitch-calculated EBITDA to $8.8 billion versus $9.5 billion in 2011.

Ford's leverage is relatively low for the 'BBB-' rating category. In 2012,
Ford drew the remaining amounts available on its secured Advanced Technology
Vehicles Manufacturing (ATVM) program loan from the U.S. Department of Energy
(DoE), contributing to a $1.2 billion net increase in debt to $14 billion.
Combined with the lower level of EBITDA produced during the year, leverage
rose to 1.6x at year-end 2012 from 1.4x at year-end 2011. Lease adjusted
leverage rose to 1.9x from 1.7x. In January 2013, Ford issued $2 billion of
senior unsecured notes, using $593 million to retire its 7.5% debentures due
2043 and earmarking the remaining $1.4 billion for voluntary pension
contributions. Despite the net increase in debt in 2012 and early 2013, Fitch
expects Ford will pay down debt over the intermediate term as it continues to
work toward its mid-decade goal of reducing automotive debt to about $10
billion.

As of year-end 2012, Ford's global pension plans (including certain unfunded
non-U.S. plans) were underfunded by a total of $19 billion, of which $9.7
billion was in the U.S. Ford is not expected to have any required
contributions to its U.S. pension plans in 2013, but, as noted above, the
company plans to contribute a total of $5.4 billion to its global plans in
2013, including $3.4 billion of voluntary contributions, primarily in the U.S.
Also included in the $5.4 billion figure is $400 million in direct payments
that Ford expects to make to unfunded plans.

Although the discretionary contributions will reduce Ford's free cash flow in
2013, and the increase in debt used to fund a portion of them has raised the
company's leverage, they demonstrate Ford's intent to reduce the level of
liabilities on its balance sheet while maintaining a high level of liquidity.
In addition to the voluntary cash contributions, Ford is also rebalancing the
plans' asset mix, de-risking the plans by weighting assets more heavily toward
fixed income investments with cash flows that more closely match the plans'
expected payment streams. Ford also began offering lump-sum distribution
options to certain U.S. salaried retirees during 2012, and as of year-end
2012, $1.2 billion of pension obligations had been settled via lump-sum
distributions.

The ratings of Ford Credit are directly linked to Ford. Fitch considers Ford
Credit to be a 'core' subsidiary of Ford due to its importance to Ford, as
demonstrated by the high percentage of Ford vehicles sales financed by Ford
Credit, and the strong operational and financial linkages between the two
companies. The ratings also reflect Ford Credit's improved credit profile,
consistent operating performance, solid credit quality, adequate liquidity and
risk adjusted capitalization.

Ford Credit's loss to global receivables ratio measured 0.16% in 2012, the
lowest on record. Fitch believes that net loss rates have bottomed and will
modestly increase over the next few quarters, driven by seasoning of recent
vintage loans, portfolio growth, and expected moderation in used car prices.
Operating performance normalized in 2012 as benefits from reserve releases and
residual value gains from lease returns diminished. Fitch expects portfolio
expansion and improved funding costs will help maintain profitability in 2013.

Ford Credit's access to unsecured debt markets has consistently improved
post-crisis, due to general improvement in capital markets, solid performance
of the auto asset class throughout the crisis, and the improved credit profile
of its parent. Management has lowered its managed leverage (net debt to
equity) target to 8.0x to 9.0x to increase financial flexibility and maintain
a stronger balance sheet, which is viewed positively by Fitch.

RATING SENSITIVITIES

Ford's Stable Rating Outlook suggests that a near-term change in the company's
ratings is not likely. Longer term, Fitch could consider a positive rating
action if the company's margins and free cash flow continue to grow, resulting
in further financial flexibility. This would most likely be the result of
continued increases in both net vehicle pricing and market share in Ford's
primary markets, while operating costs remain contained. Further declines in
debt and pension obligations could also contribute to a positive rating
action. An increase in the proportion of sales in emerging markets,
particularly China, could be a factor in a positive rating action, as well,
since it would lessen Ford's reliance on the mature North American and Western
European markets.

Fitch could consider a negative rating action if a very severe downturn in the
global auto market leads to a significant weakening of Ford's liquidity
position. As noted earlier, however, Fitch has already incorporated into the
ratings the effect that a severe downturn would have on Ford's credit profile.
Fitch could also consider a negative rating action if the company increases
its long-term debt to finance an acquisition or fund shareholder-friendly
activities, neither of which is currently expected. Problems with operational
execution or declining market share trends could also result in a negative
rating action, particularly if combined with a market downturn.

Ford Credit's ratings will move in tandem with its parent. Any change in its
strategic importance or a change in Fitch's view on whether Ford Credit
remains core could change this rating linkage with its parent. A material
increase in leverage, an inability to access funding for an extended period of
time, and/or significant deterioration in the credit quality of the underlying
loan and lease portfolio, could become restraining factors on the parent's
ratings.

Fitch affirms the following ratings with a Stable Outlook:

Ford Motor Company

--Long-term IDR at 'BBB-';

--Senior secured credit facility at 'BBB-';

--Senior unsecured notes at 'BBB-'.

Ford Motor Co. of Australia

--Long-term IDR at 'BBB-'.

Ford Motor Credit Company LLC

--Long-term IDR at 'BBB-';

--Short-term IDR at 'F3';

--Senior shelf at 'BBB-';

--Senior unsecured at 'BBB-';

--Commercial paper (CP) at 'F3'.

Ford Credit Europe Bank Plc

--Long-term IDR at 'BBB-';

--Short-term IDR at 'F3';

--Senior unsecured at 'BBB-';

--CP at 'F3';

--Short-term deposits at 'F3'.

Ford Capital B.V.

--Long-term IDR at 'BBB-';

--Senior unsecured at 'BBB-'.

Ford Credit Canada Ltd.

--Long-term IDR at 'BBB-';

--Short-term IDR at 'F3';

--Senior unsecured at 'BBB-';

--CP at 'F3'.

Ford Credit Australia Ltd.

--Long-term at 'BBB-';

--Short-term IDR at 'F3';

--CP at 'F3'.

Ford Credit de Mexico, S.A. de C.V.

--Long-term IDR at 'BBB-'.

Ford Credit Co. S.A. de C.V.

--Long-term IDR at 'BBB-';

--Senior unsecured at 'BBB-'.

Ford Motor Credit Co. of New Zealand Ltd.

--Long-term IDR at 'BBB-';

--Short-term IDR at 'F3';

--Senior unsecured at 'BBB-';

--CP at 'F3'.

Ford Motor Credit Co. of Puerto Rico, Inc.

--Short-term IDR at 'F3'.

Ford Holdings, Inc.

--Long-term IDR at 'BBB-';

--Senior unsecured at 'BBB-'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Evaluating Corporate Governance' (Dec. 12, 2012);

-- '2012 Outlook: U.S. Auto Manufacturers and Suppliers' (Dec. 17, 2012);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'Finance and Leasing Companies Criteria' (Dec. 11, 2012);

--'2013 Outlook: U.S. Finance and Leasing Companies' (Nov. 15, 2012).

Applicable Criteria and Related Research

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Evaluating Corporate Governance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=694649

2012 Outlook: U.S. Auto Manufacturers and Suppliers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659880

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720

2013 Outlook: U.S. Finance and Leasing Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=694510

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=789212

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Contact:

Fitch Ratings
Primary Analyst (Ford)
Stephen Brown, +1 312-368-3139
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst (Ford)
Craig D. Fraser, +1 212-908-0310
Managing Director
or
Primary Analyst (Ford Credit)
Mohak Rao, CFA, +1 212-908-0559
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst (Ford Credit)
Katherine Hughes, +1 312-368-3123
Associate Director
or
Committee Chairperson (Ford)
Mark A. Oline, +1 312-368-2073
Managing Director
or
Committee Chairperson (Ford Credit)
Joo-Yung Lee, +1 212-908-0560
Managing Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com
 
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