Ford credit rating upgraded by 2nd agency

Standard & Poor’s has upgraded Ford Motor Co.’s credit rating by one notch, to two levels above junk status, saying it expects the automaker to sustain its recent success.

S&P said “positive fundamentals” in the automotive industry should allow Ford to continue its North American profitability and its performance in Europe and the Asia-Pacific region, helping to offset significant losses in South America. S&P increased the ratings of Ford and Ford Motor Credit to “BBB,” one level above the lowest investment grade, with a stable outlook.

“The upgrade reflects our view that Ford remains well positioned to sustain the recent improvement in its operating margins over the next two years,” S&P credit analyst Nishit Madlani said in a note released Friday.

The upgrade is Ford’s second by a major credit agency in recent weeks. Moody’s increased Ford’s rating in February to “Baa2,” also one notch above the lowest investment grade, with a stable outlook. Ford’s credit ratings had remained unchanged at the three major credit agencies since September 2013.

“The company successfully executed all of its 16 new vehicle launches in 2015, and we believe that the higher average prices on these new vehicles … were a catalyst for Ford’s improved profitability in 2015,” Madlani wrote. “We believe that this momentum will persist in 2016 as the company undertakes 12 global product launches.”

Ford’s net income rose to $7.4 billion in 2015 on the strength of its pickups, SUVs and crossovers.

S&P said it expects Ford’s adjusted earnings margins to improve to between 8 and 10 percent over the next two years, citing strong demand for trucks, low gasoline prices and the company’s “more competitive business model” since the last economic downturn.

The credit agency expects Ford’s automotive revenue to rise between 1 and 3 percent in 2016 and 2017, with automotive pretax profits of $9 billion.

S&P expects Ford to sustain its market share in North America and in the Asia-Pacific region. It said the automaker’s share of the European market should grow, despite headwinds in Russia, while Ford’s South American losses will likely widen this year.

Madlani cautioned that Ford’s rating could drop over the next two years if increased incentives, market share losses or other results of increased competition cause Ford’s adjusted earnings margins to miss forecasts, or if there was a “modest downturn” in the industry.

“We believe that Ford would likely maintain its ratings through a modest industry downturn if it maintains at least $20 billion of automotive cash and we were confident that a turnaround was underway,” Madlani wrote.