Ford Motor Company: Why Bankruptcy is a Foregone Conclusion

Ford’s credit rating will likely be lower soon, and the company could go bankrupt even before a recession.

• S&P and Fitch could downgrade Ford’s credit rating in a matter of minutes. This will result in Ford’s long-term debt being subject to a covenant, which could adversely impact its ability to borrow additional money.
• The company has committed billions of dollars to ambitious restructuring plans. Now it is very short on cash and in deep debt.
• The company may go bankrupt sooner than expected, experiencing declining sales in all major markets.

Ford’s Debt will be downgraded

Moody’s downgraded Ford’s credit rating from ‘junk’ to ‘junk’ in September 2019. The S&P followed Moody’s lead and downgraded Ford’s debt to BBB+, just one notch above junk.

Markets didn’t like the news because Ford’s long-term debt contains covenants that can trigger when two of four rating agencies consider it junk. If the covenants are started, it will be difficult for Ford to get funding in the future.

S&P could go a notch lower and cause significant financial problems for Ford. It may even lead to bankruptcy. Ford could be in free fall due to increased competition, falling market share in key markets, and weaker demand.

Cash Crunch Will Get Worse

Ford’s CEO Jim Hackett committed $11 million to help revive the company. Despite these plans, investors are losing patience as earnings continue to plummet due to losses in China.

Moody’s also didn’t believe Ford’s story and downgraded its debt regardless, citing doubts over its restructuring plans.

Even worse, the situation in China doesn’t seem to be improving. All American car manufacturers are suffering from the auto slump. General Motors even reported a 15% drop in sales in 2019.

Ford will face a rude awakening in China’s fastest-growing market for cars, with the coronavirus likely to negatively impact the Chinese economy. A debt-downgrade seems inevitable given China’s lack of profitability.

Ford is already in deep debt, and the inability to borrow additional money could spell doom for Ford.

 

Tags

billion in liquidity
balance sheet
fourth quarter
elon musk
stock market
north America
auto manufactures
cash flow
auto industry