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Moody's Investors Service, the credit rating arm of Moody’s Corp. (MCO - Analyst Report), is likely to raise the credit rating of Ford Motor Co. (F - Analyst Report) as the automaker reached a tentative four-year agreement with United Auto Workers (UAW) union. Currently, Ford has a credit rating of Ba2, which is two notches below investment grade.  

The rating agency stated that the proposed UAW agreement would help Ford maintain operating flexibility, fixed cost position, break-even point, and liquidity position near current levels.

Under the proposed agreement with UAW, the automaker would invest about $4.8 billion in U.S. plants creating 5,750 jobs. The majority of the additional 5,750 jobs will be at entry-level wages.

This apart, the agreement would allow UAW workers at Ford to receive at least $16,000 in bonuses over the tenure of the deal, which includes early retirement offers for veteran workers and plans to shift some assembly work from Mexico to the U.S.

Ford lost its investment grade rating in 2005 soon before it borrowed $23 billion for restructuring in 2006. Since then, the automaker has been eager to obtain the investment grade rating from the rating agency.

Last week, ratings agency Standard & Poor’s (S&P) raised its corporate credit rating on General Motors Co. ((GM - Analyst Report)) by two notches to BB+ from BB- as its workers ratified the 4-year contract with UAW.

S&P also lifted its rating outlook on GM to “Stable” from “Positive”. It believes the contract will help GM maintain profitability and continue generating cash in North America.

S&P expects to raise Ford’s corporate credit rating once a new and competitive labor contract is ratified. Currently, Ford has a BB- credit rating from S&P with positive implications. The agency may lift it to BB+, which is one notch below investment grade, and assign a “Stable” outlook.

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