Home / Stocks / What’s the Deal With Ford’s ‘Junk’ Bond Rating From Moody’s?

What’s the Deal With Ford’s ‘Junk’ Bond Rating From Moody’s?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”strongFord /strong(NYSE:a href=https://investorplace.com/stock-quotes/f-stock-quote/ rel=nofollow noopener target=_blankstrongF/strong/a) stock went into reverse as its bonds were labelled “junk” by a ratings agency.

The decision by Moody’s a href=to downgrade Ford’s credit rating/a is comparable to what happens to a car buyer whose credit score drops.” data-reactid=”11″>Ford (NYSE:F) stock went into reverse as its bonds were labelled “junk” by a ratings agency.

The decision by Moody’s to downgrade Ford’s credit rating is comparable to what happens to a car buyer whose credit score drops.

<p class="canvas-atom canvas-text Mb(1.

0em) Mb(0)–sm Mt(0.8em)–sm” type=”text” content=”Source: FotograFFF / Shutterstock.

com” data-reactid=”23″>Source: FotograFFF / Shutterstock.com

<p class="canvas-atom canvas-text Mb(1.

0em) Mb(0)–sm Mt(0.8em)–sm” type=”text” content=”That’s just what happened.

” data-reactid=”24″>That’s just what happened.

<p class="canvas-atom canvas-text Mb(1.

0em) Mb(0)–sm Mt(0.8em)–sm” type=”text” content=”As Ford’s a href=second-quarter earnings report/a made clear, in June it had almost $91 billion in long-term Ford Credit loans meant to help buyers pay for Ford cars.

$50.5 billion of Ford Credit debt, presumably dealer loans, will mature within one year.

” data-reactid=”25″>As Ford’s second-quarter earnings report made clear, in June it had almost $91 billion in long-term Ford Credit loans meant to help buyers pay for Ford cars. $50.

5 billion of Ford Credit debt, presumably dealer loans, will mature within one year.

<p class="canvas-atom canvas-text Mb(1.

0em) Mb(0)–sm Mt(0.8em)–sm” type=”text” content=”a href=https://investorplace.

com rel=nofollow noopener target=_blankInvestorPlace – Stock Market News, Stock Advice amp; Trading Tips/a” data-reactid=”26″>InvestorPlace – Stock Market News, Stock Advice Trading Tips

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”But the Moody’s report attacked the business for a href=weak cash generation/a as it pursues a costly restructuring program.” data-reactid=”27″>But the Moody’s report attacked the business for weak cash generation as it pursues a costly restructuring program.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”What’s really going on?” data-reactid=”28″>What’s really going on?

Is it the Cars or the Buyers?<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”The “tell” here is that Moody’s also called Ford’s outlook “stable,” noting it has $23 billion in cash and under $12 billion in “automotive debt” taken out for the company. Rather than operate a separate loan operation, Ford carries Ford Credit, based in Omaha, as a subsidiary.

Banks expect some loans to go bad, holding reserves against which losses are charged off. Ford Credit isn’t operating that way.

” data-reactid=”30″>The “tell” here is that Moody’s also called Ford’s outlook “stable,” noting it has $23 billion in cash and under $12 billion in “automotive debt” taken out for the company. Rather than operate a separate loan operation, Ford carries Ford Credit, based in Omaha, as a subsidiary.

Banks expect some loans to go bad, holding reserves against which losses are charged off. Ford Credit isn’t operating that way.

10 Stocks to Sell in Market-Cursed September <p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”In 2002, Ford sold its Brazilian loan portfolio to a local bank a href=for $430 million/a. That bank then issued more loans to buyers on its own account to boost Ford’s market share.

Handing loans to buyers as debt is controversial. If the portfolio isn’t properly managed it can generate huge losses in an economic downturn.

A recession would be a double whammy for Ford’s balance sheet.” data-reactid=”33″>In 2002, Ford sold its Brazilian loan portfolio to a local bank for $430 million.

That bank then issued more loans to buyers on its own account to boost Ford’s market share. Handing loans to buyers as debt is controversial.

If the portfolio isn’t properly managed it can generate huge losses in an economic downturn. A recession would be a double whammy for Ford’s balance sheet.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”But Ford Credit also provides valuable data to its parent company. One-third of its profit now comes from data, a href=up from one-fourth just two years ago/a.

Ford recently bought a small electric scooter startup, Spin, a href=mainly for the data/a.” data-reactid=”34″>But Ford Credit also provides valuable data to its parent company.

One-third of its profit now comes from data, up from one-fourth just two years ago. Ford recently bought a small electric scooter startup, Spin, mainly for the data.

The Reinvention of Ford<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Meanwhile, the reinvention of Ford continues.” data-reactid=”36″>Meanwhile, the reinvention of Ford continues.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Most reporters highlight the a href=$11.1 billion investment/a Ford is making in electric and self-driving cars.

But that also means it’s retreating from its traditional business. About a href=10%/a of Ford’s white-collar office staff was recently let go.

Job cuts are coming in Europe, South America and Russia.” data-reactid=”37″>Most reporters highlight the $11.

1 billion investment Ford is making in electric and self-driving cars. But that also means it’s retreating from its traditional business.

About 10% of Ford’s white-collar office staff was recently let go. Job cuts are coming in Europe, South America and Russia.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Ford is focusing its internal combustion efforts on big trucks and SUVs, which continue to sell in the U.S.

, while a href=pushing EVs in Europe/a. The company hopes to get half its European sales from hybrids and EVs a href=within three years/a.

” data-reactid=”38″>Ford is focusing its internal combustion efforts on big trucks and SUVs, which continue to sell in the U.S.

, while pushing EVs in Europe. The company hopes to get half its European sales from hybrids and EVs within three years.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.

8em)–sm” type=”text” content=”Ford is working closely with strongVolkswagen/strong (OTCMKTS:a href=https://investorplace.com/stock-quotes/vwagy-stock-quote/ rel=nofollow noopener target=_blankstrongVWAGY/strong/a) on electric vehicles.

Volkswagen in turn is pushing the a href=modular electric drive matrix/a (MEB) platform, building its first MEB-based factory a href=in China/a. This is a single platform that works across all car models and lowers costs.

Sharing that development expense with other car companies cuts costs further.” data-reactid=”39″>Ford is working closely with Volkswagen (OTCMKTS:VWAGY) on electric vehicles.

Volkswagen in turn is pushing the modular electric drive matrix (MEB) platform, building its first MEB-based factory in China. This is a single platform that works across all car models and lowers costs.

Sharing that development expense with other car companies cuts costs further.

<p class="canvas-atom canvas-text Mb(1.

0em) Mb(0)–sm Mt(0.8em)–sm” type=”text” content=”Ford isn’t putting all its eggs in Volkswagen’s basket.

It has also invested in strongRivian/strong, a href=an electric truck startup/a. The company has also;invested in a href=Argo AI/a ;for autonomous car technology.

Its latest Michigan factory is expected to produce semi-autonomous vehicles a href=within two years/a.” data-reactid=”40″>Ford isn’t putting all its eggs in Volkswagen’s basket.

It has also invested in Rivian, an electric truck startup. The company has also invested in Argo AI  for autonomous car technology.

Its latest Michigan factory is expected to produce semi-autonomous vehicles within two years.

The Bottom Line on Ford Stock<p class="canvas-atom canvas-text Mb(1.

0em) Mb(0)–sm Mt(0.8em)–sm” type=”text” content=”As a stock, Ford is strictly for income investors.

The 15 cent per share dividend yields over 6.3% at a time when long-term U.

S. bonds yield just 2.

3%.” data-reactid=”42″>As a stock, Ford is strictly for income investors.

The 15 cent per share dividend yields over 6.3% at a time when long-term U.

S. bonds yield just 2.

3%.

<p class="canvas-atom canvas-text Mb(1.

0em) Mb(0)–sm Mt(0.8em)–sm” type=”text” content=”As a company, however, Ford is currently highly speculative.

It’s trying to figure out the new worlds of electric and self-driving cars while acknowledging the sunset of its old business models. Profits are expected to come from new directions and its winding up its old ways of doing business.

” data-reactid=”43″>As a company, however, Ford is currently highly speculative. It’s trying to figure out the new worlds of electric and self-driving cars while acknowledging the sunset of its old business models.

Profits are expected to come from new directions and its winding up its old ways of doing business.

<p class="canvas-atom canvas-text Mb(1.

0em) Mb(0)–sm Mt(0.8em)–sm” type=”text” content=”Electric and self-driving cars filled with data excite Ford.

They scare Moody’s.” data-reactid=”44″>Electric and self-driving cars filled with data excite Ford.

They scare Moody’s.

<p class="canvas-atom canvas-text Mb(1.

0em) Mb(0)–sm Mt(0.8em)–sm” type=”text” content=”ema href=Dana Blankenhorn/a /ememis a financial and technology journalist.

He is the author of the mystery thriller, a href=The Reluctant Detective Finds Her Family/a/emem, available at the Amazon Kindle store. Write him at;/ema href=emdanablankenhorn@gmail.

com/em/aem;/ememor follow him on Twitter at a href=@danablankenhorn/a. As of this writing he owned no shares in companies mentioned in this article.

/em” data-reactid=”45″>Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store.

Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.

As of this writing he owned no shares in companies mentioned in this article.

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