Associated Press, Published April 24 2012
Blue oval could soon belong to Ford again
Ford Motor Co. mortgaged its logo, along with factories and equipment, in 2006 in exchange for a $23.5 billion restructuring loan. On Tuesday, it got one of the two investment-grade ratings it needs to get those assets out of hock.
Fitch Ratings raised the automaker's credit from junk status to “BBB minus,” the lowest investment-grade rating. The agency said Ford has repaired its balance sheet and improved its vehicles in recent years, putting it “in a solid position” to withstand any slowdowns in the global auto industry. Now, Ford must wait for one of the other two ratings agencies — Standard & Poor's or Moody's — to make a move.
The blue oval, which is recognized worldwide and appears on everything from baseball caps to key chains to an $18 set of scented candles offered on eBay, dates to 1965. Ford began replacing black and white ovals with blue ones that year, according to Ford corporate historian Bob Kreipke. The script in the center of the logo goes back even further. Harold Wills, a friend of company founder Henry Ford and a draftsman who helped design the first Model T, created the Ford script in 1912 using his grandfather's stencil set.
Ford's former chief financial officer, Lewis Booth, who retired April 1, said last month that getting the blue oval back will have an “enormous” psychological impact on the company after its wrenching turnaround.
“For every person who works at Ford, anywhere in the world, that's a very precious thing,” he said.
Ford says it hasn't placed a value on the logo. But Interbrand, which tracks brand values, said the Ford brand is worth $7.5 billion, and it ranked Ford 50th out of its top 100 brands.
Toyota was the top car brand, with an 11th-place position and a total value of $27.8 billion. But Ford beat out Audi, Hyundai and Porsche.
Interbrand uses a formula that combines the brand's future strength and its role in creating demand, among other factors.
Ford lost its investment grade status in 2005 when it was racking up billions in losses as the SUV boom went bust. The company decided that a massive restructuring loan was worth risking its logo. The influx of cash helped Ford to revamp its cars and trucks and — unlike rivals GM and Chrysler — avoid bankruptcy protection.
An investment-grade rating will further help the company's turnaround. It means a company's debt has a low risk of default. Companies with investment grade credit ratings generally pay lower interest on debt. Ford will also have an easier time borrowing for projects like new plants in Asia.
Fitch said Ford's cash generation and lower costs will give it the financial flexibility it needs to stay at investment grade, even in a period of economic stress.
The debt upgrade boosted Ford's stock price. Its shares rose 4 cents to close at $11.39 Tuesday. The stock has traded between $9.05 and $16.18 the past year.
Ford began its turnaround in 2006 when Bill Ford Jr. fired himself as CEO and hired Alan Mulally from aviation giant Boeing Co. The automaker used the billions it borrowed — which Mulally calls a “giant home improvement loan” — to close plants, shed brands and cut its global workforce by one-third. Ford has paid back much of that debt. It also resumed paying a dividend last month for the first time since September 2006.
Getting an upgrade from a second agency may take some time.
S&P and Moody's raised Ford's ratings to one notch below investment grade in October after the automaker signed a new labor agreement that holds labor costs steady through 2015. But S&P analysts said last month that they didn't expect another ratings change within the next year.
S&P has a stable credit outlook on Ford, which means the company has less than a one-third chance of getting a rating change in either direction, S&P credit analyst Robert Schulz said Tuesday.
U.S. auto sales are recovering well and Ford's performance in North America has been solid, Schulz said. But he added that “the rest of the world is a more open question.”
Ford still faces risks, including how it plans to deal with sales declines and large losses in Europe, and whether its massive China expansion plan will work, he said.
Moody's, in its most recent analysis of the company, also questions whether Ford could sustain an investment-grade rating.
Fitch's outlook for Ford is stable. The agency also noted risks, including the strength and pace of the global economic recovery and the demand for automobiles, especially as Western Europe heads into recession.
But Fitch said the company's net cash of $10 billion at the end of last year and other sources of cash should give it enough money to endure a severe sales downturn. Ford can break even at a lower sales volume because of its restructuring, and it now has the right mix of both small and large vehicles. Ford's products used to tilt more heavily toward trucks and SUVs.
“Ford's more balanced product portfolio has put it in a better position to weather the likely mix shifts to smaller vehicles typically seen in economic downturns,” Fitch said.
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