Ford Motor Company

The Ford Motor Company (often referred to simply as Ford; sometimes nicknamed FoMoCo, {{NYSE|F}} is an automobile maker founded by Henry Ford in Dearborn, Michigan, and incorporated on June 16, 1903. According to Fortune magazine, DaimlerChrysler and Toyota Motor replaced Ford as the world's number two and three automobile manufacturers by revenue in 2004. For many years before that Ford was global number two behind General Motors. Ford remains one of the world's ten largest corporations by revenue.

2005 bond downgrade

In May 2005, several bond rating agencies downgraded the bonds of Ford Motor Company to below investment grade (so called "junk bonds"), at the same time they downgraded the bonds of General Motors. These downgrades were a recognition of high health care costs for an aging workforce and of the dependence of the company on profits from the sales of sport utility vehicles. Owing to higher fuel prices there has been a decrease in the profits on these vehicles owing to "incentives" (in the form of rebates or low interest financing), required due to declining sales. Foreign manufactures, not having the truck manufacturing capabilities to form a platform base for similar vehicles have instead introduced so called "crossover" SUV's — vehicles built on an automobile or minivan platform rather than a truck chassis. For various reasons including fuel economy, ride comfort, handling, and performance, these have proven to be popular in the market, while Ford had not developed such vehicles (with the exception of the Escape light SUV). As far as the other non-truck models, most of these (with the notable exception of the 2005 Mustang) are disadvantaged in the marketplace owing to a perception by buyers that foreign manufactures (especially Toyota and Honda) deliver better value in terms of fuel economy, reliability, and build quality. These perceptions are reflected in the used car market by higher values for these foreign models. For owners who frequently trade in and for those who lease their vehicles the resale values are reflected in substantial cost differences with domestic vehicles costing more in overall costs.

Related Topics:
May - 2005 - Junk bond - General Motors - Sport utility vehicle - "crossover" SUV's - Escape - Mustang - Toyota - Honda

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Response to the downgrade

The current strategy of Ford in response to the circumstances that lead to the bond downgrade is to reduce the company's reliance on a limited portion of their products for profit. To make good profits across their product line will require that they reduce the costs of development and production while introducing compelling products. This strategy is in contrast with that of GM, which has postponed development of a new rear wheel drive passenger car platform (called "Zeta" internally) to free up resources for the next generation of their light truck and SUV lines, this in the stated belief that their core market for such vehicles is sufficiently prosperous as to be insensitive to fuel price increases (and implicitly, to low resale values).

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