Ford Motor Co. (F), working to reverse overseas losses, received a vote of confidence today from Standard & Poor’s Ratings Services that the automaker will act decisively to fix its European operations.
The outlook on Ford was revised to “positive” from “stable,” the ratings company said in a statement. S&P affirmed its BB+ rating, one step below investment grade. S&P is the last major ratings company to have Dearborn, Michigan-based Ford at non-investment grade.
“Ford will act with increasing decisiveness and commitment to restructure Europe to profitability amid prospects for several more years of weak vehicle sales there,” S&P said. “We would likely want to have a good understanding of 2014 prospects for profitability by region before an upgrade and do not expect to raise our rating on Ford until then.”
The economic crisis in Europe is denting the turnaround Chief Executive Officer Alan Mulally has engineered at Ford. European pretax operating losses expanded to $404 million in the second quarter, from $149 million in the first quarter and profit of $176 million a year earlier. Ford said July 25 that it now expects full-year European losses to exceed $1 billion, double its earlier forecast.
Analysts are calling for Ford to close plants in Europe, where the automaker uses just 63 percent of its factory capacity. The economy in Europe, which accounts for a quarter of Ford’s revenue, is worse than the company anticipated at the start of the year and will stay challenging for at least five years, said Bob Shanks, the automaker’s chief financial officer.
“The most important thing about our plan -- has been and it will continue to be -- is for us to match production to the real demand,” Mulally said July 25 on a conference call with analysts. “We are going to continue to decrease our production to match the real demand.”
S&P said it expects Ford’s “profits and cash use in Europe will get worse before they get better.”
“The positive outlook reflects our view that there is a one-in-three chance that we could raise our corporate credit rating on Ford to investment grade within 18 months -- although this is not likely before late 2013,” S&P said. “For an upgrade, we would expect Ford to be on track for sustainable profitability outside North America, particularly Europe.”
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