Fitch downgrades Ford

Fitch Ratings said it downgraded the issuer default rating of Ford Motor Co. and Ford Motor Credit Co. to BB from BB+ based on increasing concerns over the deep stresses in the supplier base, which will restrict Ford's ability to reduce costs in this area. The outlook is negative.

The potential for labor actions, supply disruptions, price increases, potential financial support and costs related to re-sourcing and double-sourcing all point toward potentially higher direct costs from Ford's supplier base. Coupled with other factors pressuring margins, including legacy costs, pricing competition, high commodity costs and mix issues, this will challenge Ford's ability to stabilize operating cash flows in the face of declining market share, the agency said.

With a number of assembly plants scheduled for closure over the next several years, Ford will need to arrest market share losses (1.1% in North America in 2005) through continued, successful new product introductions or face an even further cycle of cost reductions, Fitch predicted.

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