Moody's Investors Service has downgraded Ford's (NYSE:F) credit rating to junk status, saying it expects weak earnings and cash generation as the auto and truck maker pursues a costly and lengthy restructuring plan.
Ford in 2012 was upgraded to investment grade, which is what a credit rating is called when it is not considered a junk bond.
"Ford remains very confident in our plan and progress", Ford said in a statement.
"Ford's $23.2 billion of cash, which exceeds its debt, and its conservative balance sheet afford the company the ability to fund its product development and restructuring initiatives".
That "reflects Moody's expectation that the initiatives being undertaken, particularly the global redesign effort and the new product rollout, will contribute to gradual improvement in the company's earnings, margins and cash generation, albeit over a number of years", the ratings firm said.
The restructuring, announced in July 2018, should include cash outlays of about $7 billion, and special charges against earnings totaling $11 billion over the course of three to five years.
Ford said it has plenty of liquidity to invest in its future.
It added, "The alliance with Volkswagen AG will provide important long-term benefits to Ford's position in electric vehicles, autonomous vehicles and commercial vehicles". Moody's notes that if the auto industry undergoes an anticipated downturn, the impacts will likely be amplified for Ford.
"Moody's rating agency is everything", he said. The credit downgrading also stems from the fact Ford's weak position has come at a time when the auto industry as a whole has been fairly healthy.
Moody's cited Ford's "operating inefficiencies" in "almost all" of Ford's key markets.
During the Great Recession, Ford and other USA automakers suffered massive losses and junk bond credit ratings, which can raise the cost of borrowing.
Moody's placed the automaker's debt rating to Ba1, which is the first stage of "junk" or non-investment speculative grade, from Baa3. "We're in an environment where we think the economy is looking toward harder times, not better times".