Ford Motor Co. and Ford Motor Credit Co. both saw their issuer default ratings downgraded by Fitch Ratings today, because the rating agency believes that bankruptcies among Ford's major suppliers will hamper the car company's ability to control costs.
Several of Ford's major suppliers are facing tremendous problems, including potential labor actions, supply disruptions; legacy costs, pricing competition and commodity costs. At a time like this, when Ford is steadily losing market share to its competitors and its current grab of the market stands at just 1.1% in North America, Fitch believes that its suppliers' woes will pose serious challenges this year the firm's ability to stabilize operating cash flows.
Most important of all, Ford's problems could snowball if it cannot obtain favorable pricing for the parts it needs to keep its assembly lines humming. "The risks of production disruptions and/or various forms of financial support are elevated, not just from tier one suppliers but throughout the supply chain," noted a Fitch release.
In the near term, Ford is expected to go through a number of painful changes, including more facility closures, transferring manufacturing to lower-cost sites and layoffs. In the face of all this, Ford can expect little relief from high commodity costs in 2006.
Still, Fitch acknowledged that Ford has some wiggle room to make improvements. The company has $25.1 billion in cash, and it has reduced debt by $500 million.