Moody's confirms Ford

Moody's Investors Service confirmed Ford Motor Co.'s Baa1 long-term rating and the A3 long-term and Prime-2 short-term ratings of Ford Motor Credit Co. The outlook is negative.

Moody's said the confirmation reflects: the progress that Ford has made in achieving many of the financial and operational objectives that were contained in its January 2002 revitalization plan, and that were also identified by Moody's as key benchmarks in the rating agency's ongoing assessment of the company; Ford's ability to maintain exceptional liquidity during the revitalization process, as evidenced by its $26.9 billion in cash and marketable securities (at September 2003), compared with $20.0 billion in debt that has an average maturity exceeding 25 years; and Moody's expectation that Ford is continuing to lay the groundwork for much stronger operating performance and cash generation during 2005 and beyond.

Despite these positive factors, Moody's believes that Ford will continue to face formidable challenges that could make it difficult for the company to sustain the current rating.

These challenges include: maintaining the positive momentum in all areas in which it has made progress since January 2002; achieving adequate profitability, returns and debt protection measures in a US market characterized by continuing high incentives; quickly restructuring its European operations to achieve adequate profitability; significantly enhancing domestic automotive revenue and earnings prospects for 2005 by achieving successful launches and solid consumer acceptance for the aggressive new product introduction program that is being initiated with the second half 2003 release of the F-150 and will extend through the end of 2004; contending with OPEB and pension legacy costs that are much more burdensome than those of its principal Asian and European competitors; managing the operational and financial burdens that might be posed by the difficulties faced by Ford's largest supplier, Visteon; and, strengthening the asset quality, moderating the high leverage, and preserving the strong liquidity of Ford Credit.

Additionally, given the likelihood that overcapacity and intense pricing competition will remain key characteristics of the global automotive industry, a major long-term challenge confronting Ford will be the need to establish a business model that enables it to generate adequate returns on investment and capital, Moody's said.

The negative outlook reflects the uncertainty that Ford will be able to demonstrate that its revitalization strategy will restore a sufficiently competitive position in the U.S. and European markets, and the uncertainty that this competitive position will result in adequately robust and sustainable generation of free cash flow from automotive operations by 2005, Moody's added.

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