Standard and Poor’s (S&P) raised its corporate credit rating on Ford Motor Co. (F), followed by Fitch Ratings due to the optimism triggered by the automaker’s recently ratified 4-year labor contract with United Auto Workers (UAW) union.
S&P raised its corporate credit rating on Ford by two notches to ‘BB+’ from ‘BB-,’ and removed it from CreditWatch, which indicates a possible downgrade. It also placed a “Stable” outlook on the company’s rating.
This followed Fitch’s upgrade of issuer default ratings for Ford to ‘BB+’ from ‘BB’ last week. Fitch gave Ford a “Positive” outlook.
Moody’s Investors Service, the credit rating arm of Moody’s Corp. (MCO), is also likely to raise the credit rating of Ford due to the UAW agreement. Ford lost its investment grade rating from the rating agency in 2005.
Ford expects to benefit from labor efficiency improvements resulting from the UAW agreement. The company will also record a marginal rise in labor costs (less than 1% annually), which would be the smallest increase in four decades. Due to these factors, Ford is considering reinstating dividend payments for its shareholders.
Previously, S&P raised its corporate credit rating on General Motors Co. (GM) by two notches to BB+ from BB- as its workers ratified the 4-year contract with UAW.
S&P also lifted its rating outlook on GM to “Stable” from “Positive”. It believes the contract will help GM maintain profitability and continue generating cash in North America.
