Fitch Gives Ford Positive Outlook

CHICAGO & NEW YORK - Fitch Ratings assigned a 'CC/RR6' rating to Ford Motor Company's issuance of $2.875 billion seven-year senior unsecured convertible notes, a positive ratings outlook.

The Positive Outlook reflects the better-than-expected progress on Ford's cost reduction program, production and inventory discipline that has resulted in solid pricing performance and continued market share gains. Although Fitch expects a weak rebound in industry sales in 2010, Fitch expects that cash drains will be materially reduced and comfortably within Ford's liquidity position.

Fitch expects that industry sales will show only modest improvement in 2010, based on macroeconomic factors, including increased unemployment, reduced wealth, consumer spending pressures and a higher savings rate. Other factors muting a rebound in industry sales include more limited financing capacity, potential increases in gas prices and evolving consumer thinking that may stretch average vehicle age. Nevertheless, the combination of Ford's cost reduction efforts and price performance has led to sharply reduced cash drains in a trough environment.

Fitch expects that even if U.S. industry sales were to remain flat at roughly 10.5 million vehicles in 2010, Ford's cash drain would be less than $5 billion. As U.S. industry sales climb above an 11.5 SAAR rate, Ford should be able to achieve positive free cash flow.

Although cost reductions should continue to be realized through fourth-quarter-2010, the step change in fixed cost reductions have largely been completed, and margin expansion going forward will need to be derived primarily from capacity utilization and scale efficiencies associated with increases in industry volumes. The recent contract talks demonstrate, however, that full labor-cost parity may still be a challenge.