Sometimes, financial news can be two-sided, especially when it comes to Ford Motor Company. While Ford paints a very rosy picture of its current position and future plans, investors aren’t convinced. Perhaps the truth lies somewhere between the two extremes, but that disconnect means Ford’s bond rating has taken a hit.

Junk Status

According to a report in the Wall Street Journal, Moody’s Investors Services cut its bond rating for Ford to junk status. It bases this low investor rating on weak cash supplies and operating profit margins, as well as a multi-pronged restructuring that Ford is in the middle of completing right when the market for cars is falling. It also says that Ford’s losses from sales in China are a concern.

While not sounding the alarm bells as it did about Ford in the mid-2000s, Moody’s does say Ford has, “a sound balance sheet and liquidity from which to operate.” From regulatory filings, Ford is sitting on $22.1 billion in cash.

Ford’s turnaround plan under new boss Jim Hackett has raised questions since he took over in 2017. Hackett took the job after CEO Mark Fields was fired as sales fell, with the resultant tanking of stock prices. His decision to kill all of Ford’s sedan production has raised eyebrows as most of the sedans showed a profit, though not as much profit as trucks and some SUVs. The Korean, Japanese, and European car manufacturers have not found it necessary to do the same and continue to offer an array of sedans in different sizes and price points. Of course, they don’t have the F-150, either.

Investor Concerns

Investors are concerned that Ford came late to the electrification party and that, if another recession hits the US, consumers will back away from trucks and SUVs. If they switch to fuel-efficient sedans, it could leave Ford without anything to offer. And fair or not, investors also appear to be concerned that Hackett has not performed magic at Ford since taking over.

The cut in investor rating could hurt Ford when it comes to borrowing costs. Especially Ford Motor Credit, which dips into the debt market waters from time to time. This will also rattle current investors who will now have less patience for Hackett’s turnaround plans.

Ford “Very Confident”

In a statement, Ford said, “We remain very confident in our plans and progress. As Moody’s notes that we are already addressing two of its primary concerns: operating inefficiency and our China business.” 

Amid concerns last year Bob Shanks, Ford’s chief financial officer, said, “Ford is moving with a sense of urgency and taking proactive steps to redesign and restructure the business, and over time the market will recognize our progress.” Some investors were already sounding warning signs that the company would end up in high yield. 

“It’s a combination of a fairly weak strategic position, less than ideal strategic decisions over the last handful of years, a smattering of overconfidence, and where we’re at in the credit cycle,” said Eaton Vance Corp. performance manager Henry Peabody. 

Ford has always seemed like it was in a better cash position than rivals GM and FCA, especially during the Great Recession that began in 2008. Then GM and Chrysler fell into bankruptcy and received government bailouts, while Ford had already been forced to finance itself on a secured basis.