NEW YORK Dec. 23, 2009 -- Standard & Poor's Ratings Services said today that Ford Motor Co.'s (B-/Stable/NR) announcement that it has reached an agreement to sell its Volvo car unit to Zhejiang Geely Holding Group Co. Ltd. (unrated) will not affect the ratings on Ford and related entities. Ford said it anticipates signing a definitive sale agreement in first-quarter 2010, with closing in second-quarter 2010, and that it does not intend to retain an equity stake in Volvo.
Ford previously had said it was exploring a possible sale of its Volvo unit. Under the terms of Ford's credit agreement, Ford must use half of the proceeds from any Volvo sale to repay its secured term debt. We plan to reassess our recovery ratings on Ford's secured debt once the company discloses the amount of net cash proceeds and resulting debt repayment.
We consider Ford's business risk profile to be vulnerable and its financial risk profile to be highly leveraged. However, we believe the company is showing early signs of progress in reducing its cash use from its automotive operations, and in stabilizing, if not improving, its U.S. market share. In its third quarter, the automaker reported $1.8 billion in operating-related cash flow from its global automotive operations, excluding the effect of up-front subvention payments to Ford Motor Credit Co. LLC. This is in contrast to the $3.6 billion in cash that Ford used in the first six months of 2009, and a staggering $16.6 billion in all of 2008.
Still, Standard & Poor's believes fundamental business risks will remain unchanged well into at least 2010, most notably the company's exposure to weak vehicle demand globally, but also the substantial execution risk of the company's ongoing restructuring and repositioning.
Our economists forecast U.S. light-vehicle sales of about 10.3 million units this year, the lowest in decades, and down 22% from the 13.2 million units sold in 2008. We currently expect sales to rise to 11.1 million units in 2010, but even with this improvement, sales would still be 16% below the weak levels of 2008. For more details, see the summary analysis on Ford, published Nov. 16, 2009.